Credit Scores and Bad Credit

A credit score is a mathematical formula that determines your level of creditworthiness. Creditworthiness means how likely you are to pay your bills; especially your credit cards and other loans.

In the United States credit scores are based on credit information; mostly records submitted by banks, credit card and mortgage companies, compiled by the major credit bureaus. Credit scores are used to determine whether to give people mortgages, credit cards or bank accounts. The idea behind them is to deny such credit to people who won’t pay their debts.

Credit stores are not based on your income or your job. They are based purely upon your credit history so a person with a lot of money can still have bad credit. A person with no money can have good credit. This is why many people who have bad credit can still borrow and open bank accounts.

Credit History

Your credit history is the record of your payment or nonpayment of debts for the past several years. Your credit score is based upon the amount of negative information that’s in your credit history.

Negative information consists of reports about debts that you haven’t paid such as unpaid bills or charged off bank accounts that’s been reported to the big three credit bureaus (Experian, Transuion and Equifax). The credit bureaus maintain a computerized database of this information that lenders check when you apply for credit. Your credit score is based on this information, contrary to popular belief the credit bureaus don’t create your credit score they simply compile the data its based on.

Certain incidents in a credit history such as bankruptcies and a large amount of unpaid credit card debt can cause credit scores to be very low. Low credit scores are considered indications of these which are seen as sign that someone won’t pay their debts.

How A Credit Score Goes Up and Down

Generally, positive information causes your credit score to go up while negative information causes it to go down. The credit score is usually set on a scale between one and one thousand. Usually a credit score has to be around 700 to be considered good.

Most people become concerned about credit scores when they try to buy a house because mortgages are based on the credit score. Many people will try to raise their credit scores to get good credit before applying for a mortgage.

Many mortgage brokers will work with clients or potential clients in an attempt to raise their credit score so they can apply for a mortgage. There are also a variety of counseling services that claim to help people do this.

How To See Your Credit Score

The way to learn your credit score is to order your free credit report from the Big Three Credit Bureaus. You can get a free copy of this report by going to www.annualcreditreport.com this website will send you a free copy of the report if you request it. Once you see your credit report and your credit score you can determine if you have bad credit or not.