Your credit score plays an important role in determining if you and how much money you qualify for on loans. Your credit report is information that has been accumulated from your creditors and will determine your actual credit score.
Yes, a piece of paper controls your financial destiny. Your credit report tells lenders what your payment history is on past loans, your available credit, credit card history and many other things that can have a positive or negative affect on your credit report. All of the information in your credit report is compiled to determine your three-digit credit score.
Your credit score is what lenders look at to determine if you are eligible for loans. Lenders assess your credit score and determine what type of risk they will be taking by granting you loans. Lenders do have access to credit reports but looking at the credit score is a much faster process and can be more subjective. The three digit credit score an individual has is accumulated from points. The credit score system provides positive points for good repayment history and negative points for bad repayment histories. Lenders will compare points from different borrowers to determine if an individual is considered high risk or low risk.
What Determines Your Credit Score
We all want to have perfect credit; some of us just really aren’t sure how to get there. You may also be wondering what determines you credit score, and in turn what lowers your credit score. Your payment history makes up about thirty five percent of your credit score, on average. When you make a late payment, they factor in three elements, decency, frequency and severity. They want to know how recent your trouble is, how frequent it is, and exactly how serious your problem is. The proximity of your balance to your credit limit is also affects your score. This means that you should never carry a balance on your card that is close to the limit of the card. This is included in the amount of debt you have and accounts for about thirty percent of your score.
The amount of time that you have carried credit will account for fifteen percent of your score, the longer you’ve had it the better. Ten percent of your score will be determined by the diversity of the credit you have. This means different types of credit, bank credit cards, store cards, or different types of loans. The last bit of your credit score is determined by how much credit you apply for. If you have excessive inquiries with lenders, this of course looks negative on your account.
It is important to understand exactly what determines your credit score so you can avoid the things that lower your score. If you know that your score needs to improve, use this knowledge to improve your financial status and make sure you are doing all you can to have a great credit score!
Weird Stuff That Hurts Your Credit
There are some strange things, things that you never would guess could have a negative impact, that can hurt your credit score. One of these things is caused by the type of credit card you have. Some credit card companies, such as Capital One, refuse to report its customers’ credit limits to the credit bureaus. This causes the bureaus to use the full balance that was charged as the proxy for the credit limit. This in turn can cause a drop in the consumer’s credit score. The lower your score, the higher interest rates you will be charged on other loans. Low credit scores can even affect your insurance premiums. If you know that you’re not being reported correctly by certain companies, there are only three things you can do about it. First, you could fight it and try to get the company to change it. Second, you could reset your limit to something higher, just make sure that you can pay it off. Or, third, you could switch to a card that reports correctly all the time.
Some other strange things that can influence your credit scores are doing balance-transfers and settling debts. When you switch cards all the time it can cause your credit score to drop. A reason behind this is that you are opening a new card and the FCIO formula would rather see several debts reported then just one consolidated debt. Settling debts in collections for less then the original debt is also a bad idea and will cause your score to drop.
Keeping up with your credit score takes diligence and financial planning. The reward is the ability to borrow money for mortgages, cars and the other things that we all strive to have. By knowing your credit and working to keep your score high, you will easily be able to fund your dreams.
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