Credit Score And Why You should Nurture It

How Credit Scoring Works

As you already know, your credit rating or credit score is an indispensable asset.

Apart from the fact that it can be used to determine your credit worthiness, it will also govern the approach to you as a creditor, on fundamental aspects of your life. For instance, it can determine the rate of interest you pay on your credit card, or dictate whether or not you can rent or even purchase a home.

Put simply, your credit rating or credit card score, is the result of a statistical analysis of your credit file. It is based on credit report information from the three main credit reference agencies or credit bureaus and is a means of providing financial institutions such as credit card companies and other lending establishments, with a quick way of comparing your credit worthiness against that of other credit consumers.

If you apply for, or use any kind of credit such as credit cards, your personal credit score will be central to the process. As such, it can be used/shared across and between financial establishments - credit card companies, banks and other credit lending institutions. These establishments use your scoring for a variety of reasons, including the following:

  • To evaluate risk/mitigate bad debt losses
  • To determine which consumers qualifies for credit card credit
  • To determine preferential interest rates for high credit scorers
  • To determine credit limits/how much you can borrow
  • To determine how much you pay for insurance premiums etc.,

    Cedit Scoring System

    There are a number of credit scoring systems in use, such as VantageScore, NextGen and FICO - which happens to be the most widely used system to score credit in the US. A credit score in the US, will range from between 300 to 850, so you can gauge the average credit score between these two figures.

    Since credit scoring is in effect a reliable and impartial measure of the level of risk a credit card company or a lender is prepared to take on by extending you credit, it acts as a quick reference to your credit standing. So, the higher you score for credit card credot, the more reliable and credit worthy you are perceived by credit card companies and other lenders; which will of course be reflected in your credit card score.

    Advantages Of Good Credit Card Score

    There is without doubt numerous advantages to having a good credit scoring or indeed, nurturing one.

    Apart from making life a whole lot easier for you to get a credit card credit approval, or any other kind of credit, a positive credit score will open many more financial doors to you. As well as giving you a greater degree of flexibility, your good credit score will afford you incentives and perks that can undoubtedly save you a small fortune over the long-term.

    Here are some of the advantages, having good credit scores could mean for you:

  • Preferential interest or lower interest rate credit cards
  • Special or introductory offers
  • Reduced insurance premiums
  • Free travel insurance coverage
  • Reduced loan/mortgage interest rates

    It is worth remembering, that just because your credit card rating or credit score might be low, this does not mean you cannot take positive steps to improve it. First though, you will need to understand some of the factors that credit agencies take into consideration when working out your credit report score.

    In the meantime, you might find that rather than being considered for a fantastic credit card deal, you're simply offered a less favourable alternative, until such time as you build and improve your credit worthiness or your credit reputation.

    The content on this site is purely for information purposes only and is not intended to replace your seeking professional financial advice.

    Return From Credit Score To Credit Card Credit Home