Credit score basics

Your credit score or credit ranking makes all the difference between you getting a loan or buying a home and being unable to secure loans. Credit scores are sometimes referred to as "FICO scores" because they are named after the financial organization that founded the method of score calculation. Your credit score ranking will determine whether or not you are eligible to apply for a mortgage, educational, or car loan. Your credit score is a number that falls between 300 and 850, and the higher it is, the better. A high FICO score indicates to a lender that you are a good credit risk.

 If you intend to make a big purchase, understand that your credit report will be pulled. One of three companies will usually be determining your credit rankings: Equifax, Experian, or TransUnion. How much debt you currently have and how you are paying it off are the two factors that have the biggest impact on your credit score. Preserving your credit score is a factor you should consider before you ignore your debts or opt to pay your bills late.

 If you wish to make a large loan for a mortgage, educational, or car loan, one of the most important things you can do is begin to pay down your existing debts. Paying your debts off in a timely manner proves to your debtors that you can handle the responsibilities of a loan, and that you will be able to pay the loan off in full. You should have your credit ranking checked several months before you do intend to make a big purchase. Thinking proactively will allow you to see where your FICO score stands, and allow you to take corrective steps that raise your chances of securing a loan.

 There is another benefit to ensuring your credit score is good before you apply for a mortgage, educational, or car loan: better credit risks get lower-interest loans. This means that people who can handle debt well will make lower monthly loan payments, and they will pay less for their purchases in the long-term, as well.