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These scores are important in helping the lenders decide about the loan amount and the interest rate at which a particular loan can be provided to the customer. Higher the credit score, lower is the interest rate on loans. Apart from lenders, the score is also utilized by credit card companies, phone companies, insurance companies, home owners and even employers in determining the credibility of a person.
How are credit scores calculated?
There are a variety of factors based on which credit scores of a person are calculated. Some of these include payment history of the person, amount of debt the person holds, his/her credit account history and the types of credits the person has. Payment history of the person includes information from credit cards, mortgage lenders, car loans, finance companies and store accounts about timely payment of monthly loan amounts, information from public records about payment of monthly rentals and other utility bills and information about any past history of bankruptcy, judgments, liens, wage attachments or child support orders.
The entire information is compared with the credit performance of consumers with similar profiles using a statistical formula. Depending on this, points are awarded for each factor. A total cumulative of these points is the credit score. Credit scores range from 300-850. One can obtain information about credit scores from the three nationwide consumer reporting companies or credit bureaus. You can easily get your score from any of the bureaus free of cost.
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