Friday, August 05, 2011

What you should know about your credit score.

I think it is the most appropriate time to learn the basics of our credit score and how to maintain it under permissible level. All over the world, everyone is reading about America’s credit score and how its lowered credit rating is affecting the world economy. For your information, China reduced America’s credit rating to AAA from AAA+.

Well, let America worry about how to improve its falling economy. Let us concentrate on how all these things do not lower our credit worthiness.

We all need to know how our credit score is calculated in order to improve our credit score and take actions accordingly. Do you know who calculates our credit rating? It is the lender of course who decide whether you are a risk to lend money to. They monitor how we have been paying back the loans that we got (we all avail loans without exception-right?) and fixes a number. The higher the number is, the more likely you are to get credit and this also means you get it at lower interest rates.

What happens if the credit rating number is lower?

Ah, the obvious is we have to pay higher rate of interest! In the U.S, people who take payday loans or any other loans strive to maintain their credit score above 700.

Is this rule uniform?

Of course not! Lenders are difficult to understand. They keep applying different parameters while studying your loan application. They might look at your past credit history and take it into account even if your current credit score is lower.

If at all possible, we should avoid taking a loan to meet monthly expenses. This would give us clean chit when we apply for housing or vehicle loan.

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