Understand where credit scores come from.

Understand where credit scores come from.

If you don't understand how your credit score works, you will be at the mercy of credit repair companies. Credit bureaus use computers and mathematical calculations to arrive at a credit score from the information based on your credit report, which contains a history of your past debts and repayments.

In general, your score is a number that lets lenders know how much of a risk you are. 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.

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Each bureau uses different methods to do this (which is why you will have different scores with different companies) but most bureaus use the FICO system. FICO is an acronym for the credit score calculating software offered by Fair Isaac Corporation company. This is by far the most used software since the Fair Isaac Corporation developed the credit score model used by many in the financial industry and is still considered one of the leaders in the field. Credit reports are put together by credit bureaus, which use information from client companies. It works like this: credit bureaus have clients such as card companies and utility companies, to name just two who provide them with information.

If you are going to improve your score, then logic has it that you must understand what your score is and how it works. Without this information, you won't be able to very effectively improve your score because you won't understand how the things you do in daily life affect your score. Studies have shown, for example, that smokers tend to be more prone to serious illnesses and so require more medical attention. If you are a smoker, you may face higher insurance premiums because of this. One other thing you may want to understand about the software and mathematics that goes into your credit score is the fact that the math used by the software is based on research and comparative mathematics. This is an important and simple concept that can help you understand how to boost your credit score. In simple terms, what this means is that your credit score is in a way calculated on the same principles as your insurance premiums.

Once a file is begun on you (i.e. once you open a bank account or have bills to pay) then information about you is stored on the record. If you are late paying a bill, the clients call the bureaus and note this. Any unpaid bills, overdue bills or other problems with credit count as "dings" on your report and affect your score. Information such as what type of debt you have, how much debt you have, how regularly you pay your bills on time, and your accounts are all information that is used to calculate your score. Your age, sex, and income do not count towards your score. The actual formula used by bureaus to calculate scores is a well-kept secret, but it is known that recent account activity, debts, length of credit, unpaid accounts, and types of accounts are among the things that count the most in tabulating credit scores from a report.