A credit score is the final result of a complicated formula that is used to forecast risk for loan lenders and creditors. The credit score is determined by using information in your credit report, account history and/or applications. The main purpose of the exercise is to accurately ascertain the timely payment of accounts, as well as any delinquencies. Creditors and loan lenders use credit scores to decide:

Boosting the credit limit on a current account.

Insurance companies use credit scores to help them decide:

Issuance of new insurance policies Renewal of current policies

Also, the employers use credit history to help them make employment decisions. The main credit bureaus are Equifax, Experian, and Trans Union. The credit score is commonly known as the FICO score. Some lenders including, mortgage lenders use merged credit reports that incorporate credit scores and other credit information in order to make mortgage loan decisions.

It is important to understand that your credit score is frequently updated in your credit report and your scores are calculated even if your information is incorrect. The credit score is made up of five categories:

History of payment 35%

The two most critical factors that make up your credit score are your payment history and the balance you carry. Cumulatively, the two factors make up approximately two-thirds of your credit score. One of the most important things is to focus on a path that improves your credit score, paying down your debt and your bills on time.

Whenever a creditor, lender, or an employer does a credit check, an inquiry is created on your credit report. Too many credit checks in the last few months to a year can have a negative impact on your credit score. These credit checks do not impact your credit score:

When you request your own credit report or score Mortgage or car loan credit checks in a short time period are lumped together and are usually counted as a singular inquiry (This doesn’t apply to credit card inquiries) Pre-approved credit card or credit line file reviews for promotional offers

Irrespective of what your credit score and debt situation is, never cancel your credit card accounts. The closing of your card accounts can negatively affect your credit score. Remember that your credit score is based on your credit history and how you have handled it over time. When you cancel your card accounts, you are limiting the information available to credit bureaus that helps them extrapolate your future payment actions.

Additionally, you will lessen the length of your average credit history. In calculating your credit scores, a longer credit history is better. If credit debt is an unending concern for you and you’ve exhausted all known options, then debt consolidation, credit counseling, or credit consolidation may be good option.