Here's How Credit Works

If you are going to improve your credit score, then it only makes sense that you need to understand what your credit score is and how it works. The credit score is a number, usually between 300 and 850, that lets lenders know how well you are paying off your debts and how much of a credit risk you are.

Generally speaking, the higher your credit score, the better credit risk you make and the more likely you are to be given credit at great rates. The credit score is based on your credit report, which contains a history of your past debts and repayments. Credit bureaus use computers and mathematical calculations to arrive at a credit score from the information contained in your credit report.

In fact, credit scores are sometimes called FICO scores or FICO ratings, although it is important to understand that your score may be calculated using different software.

Information such as what type of debt you have, how much debt you have, how regularly you pay your bills on time, and your credit accounts are all information that is used to calculate your credit score.

The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it is known that recent account activity, debts, length of credit, unpaid accounts, and types of credit are among the things that count the most in calculating credit scores from a credit report.

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