Credit Scoring: The Upside for Consumers
Understanding what credit scoring is and what your individual score means can help you improve your overall credit rating. But credit scoring is also a two-way street; scoring can help companies better understand and serve you. In today's harried business environment, credit scoring is a unique tool allowing a creditor, for example, the ability to quickly and accurately evaluate their potential customers.
So what's the big deal? Well, credit scoring offers the following benefits:
- Fast Credit Approval
Coupled with fast computer systems, each application for new credit can be scored and evaluated in seconds. For example, credit scoring has allowed companies to offer "instant credit," which was unheard of in years past
Factors involved in any credit score are considered using a uniform process, eliminating human error and bias. Your race, age and gender don't impact your credit score, just your credit history.
Since credit scoring analyzes each customer's credit history using the same statistical formula, there is a consistency in the way a company evaluates customers across the country.
- Reduced Bad Debt Losses
Credit scoring allows companies to more accurately predict which new customers will end up being high-risk, lowering the overall cost of doing business.
- Reduced Operating Costs
Faster, cheaper and better credit scoring means lower costs for businesses and better rates for you, the consumer.
You can also put your credit score to work for you on a personal level. Your personalized PLUS Score comes with an explanation that shows you the factors that are impacting your score.
Some general tips for maintaining your score are:
- Pay Your Bills on Time
Payment history is one of the single most important factors in determining your score.
- Pay Down Your Debts
Lenders like to see a cushion between your credit limits and your outstanding debt.
- Avoid "Bad Credit" Behavior
Missing some credit card payments might not seem like a big deal, but behavior like this can significantly impact your score.
- Apply for New Credit Sparingly
Shopping around for credit can have an adverse affect on your score, especially if you have a history of applying for multiple cards over a short period of time. Each time you apply for new credit and that company checks your report, an inquiry is added to your credit file. Too many inquiries can be seen as an indication that you have had trouble getting new credit or could be overextending yourself.
Credit scoring is a powerful tool for both businesses and consumers. Better credit access at a cheaper cost to you is what it's all about.
To see your free credit report, visit Experian, the preferred credit report provider for AutoTrader.com.
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