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The Low Down On Credit Scores And Your Credit Report
Category: FinanceIf you have ever applied for a credit card, you know for a fact that those credit card companies will not give you a card without making sure that you are able to pay them off when the time comes. “Only a fool and his money are soon parted” and those companies are no fools. They make it their business to know who are good for it and who are not. At least, they make calculated assumptions of creditworthiness. Creditworthiness is the likelihood that a person will pay his bills. A credit score is a numerical representation of a person’s creditworthiness. A credit score is based on credit report information that is gathered by credit bureaus such as Experian, TransUnion, and Equifax.
Your credit report contains a history of how you’ve paid your bills, how much open credit you have, and anything else that would affect your creditworthiness. Your credit score boils down all of that information into a three-digit number. This number helps the lender identify the level of risk they may be taking if they lend to someone. It’s the credit score that makes it possible to get instant credit at places like electronics stores and department stores.
But how do these credit bureaus come up with a credit score? This is how it is approximately determined:
- 35% of the score is based on payment history. This will give the lender a fair idea of if you pay your bills and how punctual in following due dates. How many bills you have paid late and how many bills have been sent out for collection affects this score.
- 30% is based on how much you currently owe. Car or home loans, etc. How many credit cards do you have and what are there credit limits? The more of these cards are maxed out or are at their limit, lower your credit score. Try keeping your cards at 25% less of their limits.
- 15% is based on how long you have had credit. The longer your credit history the more it will help raise your credit score. This is because having more data to base your credit habits help credit bureaus make a more accurate idea of your future credit behavior.
- 10% is based on the number of inquiries on your score. The more inquiries, the lower your credit score. This is because the supposition is you have been applying to several credit institutions and that must mean you are in financial distress or are taking on more debt.
- 10% is based on types of credits you have. It makes a difference how many loans you have and how much available credit there is in your credit card.
Your credit score can range from 300 to 900. Just like when you were in school wherein your teacher based your grades on attendance, oral recitation, quizzes, and homework, your credit score is based on your credit patterns and how you handle credit in the school of life and practical living…
F Stewart develops software to help youth and adults to understand their credit situation. CredMedic is a free software package that includes a credit calculator, creditor database, and personal finance information. More information is available at http://www.CredMedic.com
Tags: credit history, credit report, credit score, personal finance, credit