A credit score refers to a statistically derived numeric expression which implicates the creditworthiness of a person. This credit score, as an indicator of the creditworthiness, is used by the lenders to access the chances of a person repaying his/her debts. Besides, the credit score plays a vital role in influencing the decision of a lender to extend the credit term as well as the terms of credit.
Interpreting a credit score
The interpretation of a credit score varies according to the lender, industry and economy as a whole. At the same time, 620 has been set as a divider between ‘prime’ and ‘subprime’. Besides, all considerations about credit score revolve around an economy’s general strength as well as the appetites of the investors in bearing risks involved in providing funds to the borrowers, especially when the scores are evaluated.
How to increase your credit score
There are certain tips which can help you increase the credit score and thus the probability of getting a credit. These include:
- Get a credit card
It is not essential to carry a good balance to maintain your scores. All that is required to build a good score is to have and use a credit card.
- Add an installment loan to the mix
Your credit score will improve faster if you show being responsible with both kinds of credit: revolving (credit cards) as well as installment (auto, mortgages, and personal and student loans).
- Pay down your credit cards
Your credit score can, undoubtedly, increase by paying off your installment loans, but it is easier to do so by paying down revolving loans.
- Use your cards lightly
Your credit score can be affected by racking up high balances, irrespective of your bills are paid off in full every month.
- Check your limits
If, in case, your lender is showing a lower limit than what you have actually received, your scores might be falsely depressed.
- Get some goodwill
A lender might just ignore that one late payment if you have been a good customer, thus increasing your credit score.
Credit score for businesses
Credit score can also be calculated for entity. It evaluates the solvency and financial state of the entity. There is special software which helps quickly calculate entity credit score using the data of its financial statements (for example, RreadyRatios software).