Ever wonder how your credit score is calculated? Well, it's really not all that complicated. In this article, you will learn the five factors that determine your credit score as well as the weight that each of them carries. These five factors are: payment history, overall account balances, credit history, types of credit and inquiries. After reading this article, you won't be able to calculate your score because there are complex algorithms used to compute your credit score; however, if you can understand the underlying factors that contribute to your credit, then you can learn the best strategies for boosting your score upward.
As obvious as it seems, paying your bills on time is very important. Something as simple as one 30-day late payment can stay on your credit report for 7 years. A late mortgage payment can hold you back from obtaining a loan for a year or mean the difference between a great interest rate and a poor interest rate. Also weighted heavily are collections, charge-offs, judgments and bankruptcies. These types of issues generally affect your credit rating in the most negative way. It is certainly possible to have these issues corrected in time. The important thing is to become knowledgeable about your credit in order to correct these issues as well as prevent them from occurring in the future.
10% for New Credit: If you are constantly opening new credit lines with department stores, this will lower your credit score. These credit cards have low limits and when you use the maximum amount of credit it will make large decreases in your credit score.10% for the type of credit you have: Credit with high risk lenders, loan sharks, and possess many credit cards, will have a lowering effect on your credit score.
The things that damage your credit score the most are late payments, collections, Bankruptcies, foreclosures, tax liens and judgments. If you have any of these types of credit accounts you will see credit scores in the low 500's and not sufficient to receive a loan from current lenders.It make good sense, if you have a lot of high interest loans, high loan to value credit cards and collections, to refinance your home or take out an equity line and pay off these small loans. This action can raise your FICO score dramatically and make it possible to get approval from a bank for a better loan rate.
A score of 750 or more will give you the best interest rates and the best chance of being approved for a loan. On the other hand, with a of 600 or less you will have a hard time finding a lender who is willing to give you a loan. And if you find it, you will have to pay a lot of money in interest just because of that low score.That's why you have to improve your credit score as soon as possible (if you have a low one or not): To avoid high interest rates.To save thousands of dollars in interest in the long run.And to get the house or car of your dreams at the lowest cost possible.
Where Does It Come From? Now you are probably wondering "Where does my credit score come from?" This is a very common question and the answer is simple: Your credit score comes from your credit report.This credit report is created by the three major credit bureaus in the states and it contains the history of your payments, the amount of loans that you have, how much you owe, and a few other things.
Look for support from professionals.Don't be enticed by every attractive offer by lenders. It is better to speak to a specialist prior to accepting an agreement without thoroughly investigating the fine print.Financial experts can assist you in effectively handling your financial resources. They can be your source of help and support on concerns regarding your credit scores. They can probably advise you on the benefits and drawbacks of pulling your own credit report and the many demands lenders require before they arrive at a credit decision.
Amounts Owed (30%),Amounts owed represent 30% of your credit score. It refers to the amount of debt you have in comparison to your credit limits. This is also called the "debt to credit ratio" and it works like this:Let's say you have $10,000 available and you only owe $3000, then your ratio is 30%. So the formula for the "debt to credit ratio" is: your debt divided by your available. The lower the ratio, the better for your score,Important: If you have a high ratio, don't apply for more available credit to lower it. It will only hurt your score even more so please don't do that.Credit Length (15%),Credit length represents 15% of your score. The longer your history is the better for your score. This is based on the assumption that your past financial habits are likely to be the same in the future. And if you have a long history, the bureaus can see exactly what your financial behavior is.
Consolidate.Debt consolidation is usually for individuals that experience difficulty paying off debts to their lending institutions. Consolidation is recommended for such people to unburden them of stress in making many different monthly payments to several different lenders.Examine and re-evaluate.Be your own financial counselor. Do not let financial problems pile up. Rather than awaiting credit rating reports to be mailed to your front door, make your own assessment. By doing this, you are updated concerning your credit reports.
Self-evaluation of your credit report will help you evaluate what kind of credit ratings you still have. Nowadays, if you want a complimentary copy of your credit report, you could easily go online and find one. Some even offer a free trial service.Learn How to Improve Your Credit Score,Your FICO score can establish just how excellent or bad your credit rating is in addition to the national average rating. Learn how to improve and maintain your credit score. Monitor and keep track of your credit score on your own. You will not only learn how to preserve an excellent credit score and rating, but aid your nation in maintaining a good average credit rating and help in stabilizing the economy.
As obvious as it seems, paying your bills on time is very important. Something as simple as one 30-day late payment can stay on your credit report for 7 years. A late mortgage payment can hold you back from obtaining a loan for a year or mean the difference between a great interest rate and a poor interest rate. Also weighted heavily are collections, charge-offs, judgments and bankruptcies. These types of issues generally affect your credit rating in the most negative way. It is certainly possible to have these issues corrected in time. The important thing is to become knowledgeable about your credit in order to correct these issues as well as prevent them from occurring in the future.
10% for New Credit: If you are constantly opening new credit lines with department stores, this will lower your credit score. These credit cards have low limits and when you use the maximum amount of credit it will make large decreases in your credit score.10% for the type of credit you have: Credit with high risk lenders, loan sharks, and possess many credit cards, will have a lowering effect on your credit score.
The things that damage your credit score the most are late payments, collections, Bankruptcies, foreclosures, tax liens and judgments. If you have any of these types of credit accounts you will see credit scores in the low 500's and not sufficient to receive a loan from current lenders.It make good sense, if you have a lot of high interest loans, high loan to value credit cards and collections, to refinance your home or take out an equity line and pay off these small loans. This action can raise your FICO score dramatically and make it possible to get approval from a bank for a better loan rate.
A score of 750 or more will give you the best interest rates and the best chance of being approved for a loan. On the other hand, with a of 600 or less you will have a hard time finding a lender who is willing to give you a loan. And if you find it, you will have to pay a lot of money in interest just because of that low score.That's why you have to improve your credit score as soon as possible (if you have a low one or not): To avoid high interest rates.To save thousands of dollars in interest in the long run.And to get the house or car of your dreams at the lowest cost possible.
Where Does It Come From? Now you are probably wondering "Where does my credit score come from?" This is a very common question and the answer is simple: Your credit score comes from your credit report.This credit report is created by the three major credit bureaus in the states and it contains the history of your payments, the amount of loans that you have, how much you owe, and a few other things.
Look for support from professionals.Don't be enticed by every attractive offer by lenders. It is better to speak to a specialist prior to accepting an agreement without thoroughly investigating the fine print.Financial experts can assist you in effectively handling your financial resources. They can be your source of help and support on concerns regarding your credit scores. They can probably advise you on the benefits and drawbacks of pulling your own credit report and the many demands lenders require before they arrive at a credit decision.
Amounts Owed (30%),Amounts owed represent 30% of your credit score. It refers to the amount of debt you have in comparison to your credit limits. This is also called the "debt to credit ratio" and it works like this:Let's say you have $10,000 available and you only owe $3000, then your ratio is 30%. So the formula for the "debt to credit ratio" is: your debt divided by your available. The lower the ratio, the better for your score,Important: If you have a high ratio, don't apply for more available credit to lower it. It will only hurt your score even more so please don't do that.Credit Length (15%),Credit length represents 15% of your score. The longer your history is the better for your score. This is based on the assumption that your past financial habits are likely to be the same in the future. And if you have a long history, the bureaus can see exactly what your financial behavior is.
Consolidate.Debt consolidation is usually for individuals that experience difficulty paying off debts to their lending institutions. Consolidation is recommended for such people to unburden them of stress in making many different monthly payments to several different lenders.Examine and re-evaluate.Be your own financial counselor. Do not let financial problems pile up. Rather than awaiting credit rating reports to be mailed to your front door, make your own assessment. By doing this, you are updated concerning your credit reports.
Self-evaluation of your credit report will help you evaluate what kind of credit ratings you still have. Nowadays, if you want a complimentary copy of your credit report, you could easily go online and find one. Some even offer a free trial service.Learn How to Improve Your Credit Score,Your FICO score can establish just how excellent or bad your credit rating is in addition to the national average rating. Learn how to improve and maintain your credit score. Monitor and keep track of your credit score on your own. You will not only learn how to preserve an excellent credit score and rating, but aid your nation in maintaining a good average credit rating and help in stabilizing the economy.
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