Many people have heard of bad credit, but some may not know what it means. For a long time,

there was no established method for determining the credit activities of consumers.

However, this all changed when a company called the Fair Isaac Corporation designed a

credit scoring system that is called the FICO score. Because the three major credit

agencies have different information on each consumer, the FICO score calculated by these

agencies won't be exact.

Your FICO score has become the best way to determine if your

credit is good or bad. To get your store, information in your credit report is compared to

the credit reports of others. Your future credit activities can be determined by this

information. When you apply for a loan, lenders will look at the FICO score to determine if

they should allow you to borrow money. Having a low score doesn't automatically mean you

won't be allowed to get a loan.

In the past, having any marks on your credit report would

cause lenders not to loan you any money. They had no way of determining which borrowers

would pay off their debts. With the advent of the FICO score, more people today who have

had problems with their credit in the past are now able to apply for loans. Mathematical

models allow lenders to study the behavior of borrowers to decide whom they should lend

money to. Banks and credit cards companies have taken advantage of this data by making

offers to people who have different credit issues.

Those who have problems with their

credit can usually apply for loans, but they can expect to have much higher interest rates.

The FICO score ranges from about 300 to 850. The closer you are to 850, the better your

score is.

Statistics show that the average American has a credit score that is about 677.

To qualify for loans that have the best interest rates and features, you will need to have

a score that is at least 720. If you want to know your credit score, there are a number of

services that will charge you a fee for it.

A number of factors go into calculating your

score. The most important factor is your payment history. How you make your payments will

determine about 35% of your score, which is almost half. Failing to make payments on time

is one of the leading causes of getting bad credit. Your payment history includes payments

on credit cards, loans, and other bills. Filing for bankruptcy can greatly lower your

score.

The amount of money you owe will determine you score as well. People who have too

many loans and credit cards will have a score that is lower. If you have a long credit

history that is good, this will increase your score. Lenders are much more likely to give

good loans to people who have established credit. It is important to understand the

different things that affect your credit score, because this could allow you to maintain a

high score.

If your credit score is low, this means that you need to start making payments

on time. If you have a large number of loans and credit cards, get rid of some of them.

Being responsible with how you manage your credit will allow you to keep a high credit

score. Lenders will be much more likely to give you the best rates and features on loans.

Even if one lender rejects you, this doesn't mean that all lenders will reject you.

Understanding credit and how to manage it will allow you to remain financially successful.

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