How Average Credit Score Ratings Are Determined

Average credit score ratings have decreased considerably during the current economic downturn, making it harder than it has been for decades to borrow money. More people have accessed their credit score in recent years, because the Federal Government has passed a law entitling every US resident access to their agency credit reports once every year, but few are able to take the steps needed to really create an excellent credit profile. The system remains controversial for several reasons, one of which is that it can be gamed so easily.

To make any progress with credit scoring it is necessary to understand exactly how the scores are created. Every individual has a file on which their financial activity is recorded, so that lenders can access it to help them make lending choices in the future. The scores are created by an amalgamation of several indicators based on individual factors, such as how many successful repayments you make and what percentage of your available credit is being used at any given time. Averages can be calculated by comparing the scores of the entire population, or of individual sectors within it.

The reports occur when there is a need for money to be paid back. The payment which is due will either be on time, late, or it will simply not happen at all. Each of these possibilities is reported for every single payment which you have to make, and these reports are then made available to any potential lender whom you approach for a loan. Some lenders will use the system as an absolute guide and will have a figure below which they will not lend, while others use it as a guide and will override it if they believe it is right to do so. Certainly, relying exclusively on the computer will not give the best results.

credit rating

The average credit score which is needed to secure any loan is never revealed to the public, and so no-one can be sure when they apply for credit whether they have done enough or not. This is one of the fundamental weaknesses of the system which mitigates against the borrower, because any extra searches of the file are recorded and can negatively affect the score. The best that you can do is optimize your credit score in advance of wanting to borrow money, and this is possible with a long term structured plan.

If you make sure that you pay every bill on time, you will avoid having negative markers placed on your file, and this is the first essential in building up a healthy profile. If there are not that many payments to make, however, it will take a long time to build up your rating to any high level, and you will in any case be limited as to how far you can go. Taking on extra borrowing is essential, but this should be done in the right way. Using high interest credit cards is ideal, as long as the balance is paid in full every month.

You can rise well above the average credit score by following this two pronged attack. Get as much of an available credit platform as you can, and make sure that all money you do borrow is paid back on time, every time. There will come a time when you can diversify your borrowings, and this is also good for higher scores. If you don't yet have a mortgage, give some thought to whether you can fit this into your plans. With the right planning and the right diversification, you can build a way above average credit score.

 

 

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