If you’ve attempted to take out a loan or open a new credit account recently, you realize that the days of easy credit are gone. Lenders, insurers, landlords and even many employers are more diligently analyzing your credit history to see if you are a beneficial risk.
A low credit score can cost a small fortune over the course of a lifetime. It’s harder to qualify for a mortgage, you’ll need a bigger down payment and you’ll pay a higher interest rate, which adds up over time. Someone with poor credit might pay an extra $100,000 in interest over the life of a typical 30-year, $300,000 mortgage.
Similarly, someone with a poor score could pay an additional $10,500 in interest on a 60-month, $25,000 auto loan. Credit card interest rates can be 10 or more percentage points higher and credit limits are typically a lot smaller.
Upon request from you or a potential lender (and, increasingly, employers and landlords), bureaus construct a report showing your credit history to date. Among other things, it contains a summary of open and closed accounts, outstanding balances, recent inquiries and negative items (late/missed payments, bankruptcy, tax liens, etc.)
When applying for new credit, the lender will ask a credit bureau to assemble a three-digit credit score, based on information in your credit report – basically a quick glance at your credit profile at that moment. The lender uses your credit score to supplement its own selection criteria to determine whether you are a worthy credit risk.
Five factors are used to determine your credit score: payment history (typically around 35% of your score), amount owed (30%), length of credit history (15%), newly opened credit accounts (10%), and types of credit used (10%). These five categories might be weighted differently depending on your individual circumstances.
A good strategy is to rotate ordering a free report from one bureau every four months; that way, you’ll keep year-round tabs on what’s being reported about you. You can also order individual credit scores for around $15.
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- How Your Credit Scores Can Conclude Your Financial Status
- Credit File And Your Scores
- Legally Remove Negative Credit Items – Understanding the Law behind Credit restoration
- Credit Scores – Getting The Bad Credit Rating Fixed
- Useful Items With Respect To Credit Scores And Mortgages
- Helpful Strategies To Effectively Increase Your Credit Scores
- Tips On Improving Your Credit Scores
- Studying Your Credit Score Details
- Loan-To-Value Ratio
- Preserving A High Credit Score Even While In Debt
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