3 reasons it matters to pay attention to your credit score

You hear a lot about credit scores and ratings. What do they really mean? Trouble, if you don't pay attention! Here are three good reasons not to ignore your credit score.

A credit rating is determined by lenders. When you have a bank loan, for example, the bank regularly reports your rating to credit bureaus according to your recent payments. This rating reflects your ability to make repayments on time. You will have a different number for each account or loan.

• The "O" rating stands for open credit, such as a line of credit.
• The "I” rating represents instalment loans, such as a car loan.
• "M" rating is for mortgage.
• The famous rated "R" includes all revolving credit, such as credit cards.

The lender assigns a rating number to represent the time frame within which you made your last payment.For example:

• If you paid the minimum balance on your credit card within 30 days, the issuing card company will send an R1 rating.
• If you made a payment within 30 to 60 days, or you have more than two late payments, you have an R2 rating.
• The worst credit rating is R9. It means that your account was closed due to non-payment; that you have declared bankruptcy; that your account is in collections; or that you moved without leaving a forwarding address.

Your credit score is updated regularly by your creditors, such as monthly, every three months, or following another schedule.

This represents an average of all your ratings and is used to assess the risk you represent to lenders. They will use your credit score to determine whether or not they can grant you a loan, and if so, how much and at what interest rate.

Credit bureaus use a mathematical formula (which is not made public) based on the following information:

• The balance remaining to be paid on your credit margins and credit cards (the higher the remaining balance is in proportion to your credit limit, the worse it is for your score);
• Your payment history (delays, recovery, bankruptcy, etc.);
• Number of credit inquiries made by potential lenders;
• Types of credit;
• The number of creditors;
• The age of your accounts (recent accounts lower your score).

Your credit score ranges from 300 to 900. The higher the score the better. A high score means that you are not considered a risk for lenders.

You can improve your score by improving your rating. That means paying your bills on time, among other measures. If you choose not to change your situation, however, a bad credit score puts at risk your chance to:

1. Find a steady job.
2. Have a permanent place of residence and even purchase a house.
3. Prepare for your retirement and your children's education.

You can obtain a copy of your credit report, your score and ratings by filing a request with a credit reporting agency.