Kitchens by Riland

The term ‘credit score’ denotes a numerical figure which shows the creditworthiness of an individual. The score is ascertained by statistical analysis which is done by credit rating agencies (CRAs), is thereafter bought by banks and other financial institutions so that it helps in answering questions like:

* Should this person qualify for a loan?

* What is the risk in lending money to this person?

* At what interest rate and credit limit should we provide loan to him/her?

Thus, the three digit score is a vitally important one since the possibility of your buying yourself a house or your dream car or rather anything for that matter largely depends on this.

The credit score is calculated by the CRAs, statistically analyzing parameters like your payment history, old existing loans, duration of time that you are in debt, nature of your existing loans and new credits if any. Thus, how many bills you’ve paid on time, bills that you have paid late or defaulted, all goes into calculating how prompt you are in paying bills. Moreover, the no. of existing loans that you have, namely car loan, home loan, credit cards or if you have recently taken any new credit. Existing credit is inversely proportional to your credit score. That is, higher the amount of credit you have, lower will be your score. Moreover facts like how long you are in debt and the type of debts that you have all go into ascertaining your credit score on the basis of which all your future credits and thus purchases depend.

Until recently, the credit score information was available only with the bureaus and the financial institutions they were sold to. But The Fair Credit reporting Act (FCRA) makes it mandatory for the credit bureaus to disclose the credit scores to individuals. In USA, some states legally made it possible for credit reports and credit scores to be readily available. And thereafter even without any legal instructions it has been available to parties like your employers, utility companies, creditors, landlord, etc as a deciding factor about a new credit extension to you or the interest rate that you have to pay. In recent times, usage of credit scores is stirring up questions. For example, if you have never been a defaulter in your credit card but your credit score has gone down due to other reasons, say default in some other bill. So what if due to this, your interest rate of credit card gets hiked? Likewise a major controversy has taken place in the way insurance agencies are using credit rating scores. Hence, credit score information is one of the most crucial information in an individual’s life and one must always work towards moving it to the positive direction.