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How Do Credit Scores Work?

Ever wondered why some people get so many credit offers without asking while some people get rejected over and over? Why some people can immediately get a car loan or a house loan without being interrogated much while some people get turned down within a bat of an eyelash? Why some people become automatically eligible for certain credit perks but some people never even get qualified? It is because of credit scores. In the world of banking and finance, you are only as good as your credit score says so. It declares how attractive you are. Financially.

How do credit scores work? What does it have on you? A credit score is like the sum total of your creditworthiness. Your credit report shows your history of transactions, the credit history of how you borrow and how you repay, your late payments, your debts, how you pay your bills, how much open credit is allotted to you � all of these things are boiled down to a three-digit number which will brand your character when it comes to fiscal matter involvements. Your credit report may sometimes contain errors. It is best to check yours so that you will not miss out on opportunities that you are otherwise qualified for. It is important to get your credit report corrected although the process may be tedious for this will be beneficial on your part.

Credit scores work like this: Your credit score is mathematically generated by a certain formula, an algorithm, which is based from all the financial statement found in your credit report, and is compared with the financial statements of other people. The result of this equation is the highly accurate calculation of how liable you are to pay your bills. The programs that generate credit scores cannot be explained in full extensive details because of its complexity and confidentiality, but as previously mentioned, what it does is that it runs a check of how responsible a borrower is. Credit scores are designed to assist lenders in scrutinizing the creditworthiness of a person. It will reflect how much likely a person is to default a loan. Instead of manually reviewing a person's credit reports when they need to decide whether to approve a loan or not, they can just look at a certain number: the credit score.

Sometimes lenders will reject you not because your credit score reflects that you are an awful borrower, but because they may not make some profit over you. Lenders are not humanitarians who just dole out money to help out, they are looking for profit. This means persons who can suddenly pay back in full or shift the debt to 0% cards to evade interest may get rejected because the bank will not make any profit over them.

Before, only banks and financial businesses and ventures can gain access on viewing and checking a person's credit score. In 2001, though, the policy was changed due to the pressure that the government, the industry, and the consumers were pressing, and so now a person can view his credit score from credit reporting agencies and credit monitoring services so long as he pays the required fee.

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