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Consumer and finance experts stress the importance of taking free credit repair as well as credit counseling programs in maintaining good credit standing. Many of these experts even come up with tips, suggestions and helpful pointers that consumers can employ to have almost perfect credit ratings.

But, many consumers today still find it difficult to understand how a three digit score can be associated to credit risks, much more so to financial prospects. So today, allow us to help you understand the underlying concepts of credit scores and how they influence our lives as borrowers.

Credit Rating Defined

A credit score is a mathematically-calculated value that reflects the risk involved in allowing a borrower assume credit accounts. This three digit number is computed using a credit scoring system such as the one devised by the Fair Isaac Corporation, which is widely-known as the FICO scoring system.

The scores determined using different rating systems are eventually sold by the three credit reporting agencies to consumers who wish to determine how credit-worthy they are as well to lenders who wish to thoroughly evaluate the applications of consumers for credit.

Now how does the FICO scoring system work? In the FICO scoring system the numerical scores range from 300 to 850. A score of 700 and above is often associated with excellent credit standing, whereas a credit rating of 500 and below normally implies poor credit history.

Still, it is worth mentioning that a borrower cannot instantly have a credit rating. There is an important requirement before the three credit reporting bureaus can compute and provide an individual his or her credit score. What is this requirement? Well, an individual must have at least one credit account that has been open for at least six months. This credit account will serve as the basis for computing the credit rating of the consumer.

Now, which things affect a credit score? There are several factors that influence a credit or FICO score. These include: payment history, amount of credit, age and type of credit accounts and the number of inquiries made on credit records. However only three of these things have the greatest impact on the the credit rating of an individual. The first is payment history. It reflects how a consumer manages his credit accounts in terms of providing on time and complete payments. Second is the amount of credit. This takes into consideration the level of a consumer’s current debts. Third is the age and type of the credit accounts. This factor focuses on the average age of a debtor’s credit obligations as well as the types of credit lines that he has taken.

Ways to Improve Credit Scores

Now let us tackle three tips that you can employ to improve your credit score. – Use a credit card discreetly. Never max out your credit card as this will cause your credit score to slide down. – Always pay your credit charges on-time and in full each month. – Enroll in free credit repair programs. Through free credit repair sessions you will be given proper guidance in managing your finances as well as tips and suggestions on how you can improve or maintain your credit scores.

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