The Colloid Base

In almost all advice articles you’ve read about car loans, the importance of the credit score is mentioned. This score is composed of three digits and it will get your loan application either approved or rejected.

The credit score is the result of mathematical calculations done based on information found in your credit report. Such mathematical calculations cannot be revealed just as the interpretations of the Rorschach Ink-blot psychology test cannot be made public. If everyone knows how the credit score is calculated or how the ink-blot test is interpreted, the results of these will be compromised and such assessments will become useless.

However, some information is now available so that the average person will have a general idea of how credit scores are computed. The most common assessment utilized for determining the credit score is the FICO or the Fair, Isaac, and Company. This assessment identifies five variables that determine the credit score. These are; 1)payment history; 2)outstanding balances; 3)length of credit history; 4)new credit; and 5)types of credit used.

About 35% of the FICO score is based on the person’s payment history. This uses information about the payments made to financial obligations such as credit cards, charge cards, and mortgages. It will also use details about whether you have made late payments. If you have made late payments a long time ago (five or ten years past), your credit score will not be affected much. But if your late payments are recent (two months ago), the FICO will assume that you are currently having financial problems and may not be capable of meeting additional loan obligations. Your credit score will take a plunge.

About 30% of the FICO score is based on outstanding balances. The number of outstanding balances will not really matter. What will matter is the amount of the balances. For example, a person may have ten accounts and their total would be around $2,000, and another person may have three accounts but the total will be around $9,000. If the latter is already at his credit limit, he will get a lower credit score than the first person.

About 15% is determined by your credit history. If you have a long credit history, you have proven that you handle loans well. This will increase your credit score. If it is your first time to apply for a loan, then, there isn’t much you can do to improve your score.

About 10% is based on new credit and another 10% on the types of credit used. If you have recently applied for several new credits, your score will likely go down. Credit types refer to installment loans, retail accounts, credit cards, and mortgages. Not much information about these was released by FICO.

FICO scores ranges from 300 to 850. A score of 720 and above indicate an excellent credit while a score of 620 and below imply a marred credit.

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About The Author

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

The use of credit today in the purchasing of food, property, assets and services is prevalent. There is hardly anything of value that cannot be purchased in part or in full by the use of credit, or a credit card. Whether it is to finance a home, or a car, or simply paying for a dinner or a holiday vacation abroad, credit is acceptable, convenient and useful.

However, the wide use of credit does not mean everyone who makes use of credit knows how to use it with wisdom. Credit, like the proverbial fire, can be harnessed for good or it can be like wild fire which can burn you and cause wanton damage.

Credit scores affect every aspect of our financial lives including qualification for loans and mortgages, the interest rates we pay, employment opportunities, and even insurance premiums.

Therefore, the first step towards credit repair is to know your credit standing. This means getting your credit report. Even if you do not suspect anything amiss in your credit, it is important for you to establish your credit base by getting a credit report. In this way, you can check whether there is anything reported wrongly in your credit report and can have things rectified.

This first step is also to ensure your identity is intact, that your identity has not been stolen or hijacked. This is a proactive step by a concerned consumer to ensure that there is no chance for identity theft or identity errors and eliminate the chances of being victimized by ID fraud.

If there is inaccurate or incorrect information in your credit report, you need to get them addressed and rectified. You will need to understand how to submit your valid personal disputes to the credit reporting bureau so that they meet their requirements and warrant a timely response.

Once the credit bureau legally remove inaccurate information from your credit report, this will improve your credit scores, and establish your credit standing.

As this process may seem complicated to some, there are credit repair companies who will work on your behalf if you choose to appoint them.
Some law firms and real credit repair companies draw upon their vast arsenal of credit report repair strategies and experience to challenge negative items directly with the credit bureaus.

If you have not check or verify your credit report for some time, it is needful for you to undertake a periodic check on your credit score report to ensure it is correct and there are no inaccuracies in your credit report.

Peter Lim is a Certified Financial Planner and webmaster of Credit Repair And Debt Consolidation Portal at http://creditrepair.dynamic-resources.info For a quick condensed overview and more free information on how to verify your credit score report, visit http://creditreportfix.revenuemonitor.biz