Improving
Your Credit Score: Pay Off Debt
Introduction
Credit scores are determined by the credit
reporting agencies. There are several factors that are used
to determine your overall credit score or FICO score. One
of these factors is the amount of debt that you currently
have. Based on the amount of debt that you currently have
and your income to debt ratios along with other factors, credit-reporting
agencies will assign a credit rating that ranges between 450
and 750.
How Your Credit Score Changes
Credit reporting agencies will change your
credit score when information changes. For example, should
you pay off a credit card debt and that debt now shows a zero
balance, it is likely that your credit score would go higher
since your risk of defaulting on paying your debts has been
reduced.
A Major Factor in Determining Your Credit
Score
A major factor in determining a FICO score
is look the amounts you owe on all your accounts, the number
of accounts with balances, and how much of your available
credit you are using. The more you owe compared to your credit
limit, the lower your score will be. Actually, this factor
is one of the largest determiners of a FICO score and accounts
for about 30% of your overall score.
How the FICO Credit Score is Calculated
Since each credit-reporting agency calculates
your score, the FICO score with each agency may vary. Each
agencies score is different because the credit history that
each agency has about you may be different. Many lenders will
make a credit card or other type of loan based on a single
agency’s credit score while others such as mortgage
companies always will take into consideration all three credit
bureaus information since this is a much more accurate reading
verses counting on just one resource for information. |
