Understanding Credit Report Score
Monday, April 21st, 2008 Subscribe To Our Feed
Whenever you try to get credit, be it a credit card, a store card, a car loan or a mortgage, there is a good chance that your credit score will be reviewed. A simple definition of your credit score is the odds that financial institutions put on your ability to pay back money they lend to you. The higher your score the more reliable you are and more likely to pay back the money. This score is derived from the information contained on your credit report. This article will help in your understanding credit report score.
Your credit report is a breakdown of all your financial details for the past seven years. The exceptions to the seven year rule includes some good credit information (like closing an account that was in good standing) and not so good information (like a Chapter 7 bankruptcy discharge) - both of which stay on your history for ten years.
Credit report companies take the information on your credit history and use a formula to determine a three digit credit score that lenders then use to help determine if you will get a loan and at what interest rate. Up until recently, the process that was used to determine the score was an industry secret. In 2000, a California law gave applicants the right to see their credit score, and the new federal laws give you even more rights to your own information (and to the factors that determine your score).
The breakdown of your credit score is fairly easy. The number ranges from 300 to 900 with approximately 35% of that number being based on payment history, 30% on outstanding debt, 15% on the length of time you have had credit (the longer the better), 10% on the number of inquires on your report, and 10% on the types of credit that you currently have. The companies then compare this to credit performances of other consumers with similar histories and profiles to reach your magic credit score.
Some tips to help your credit score:
• Keep your rotating credit to 25% of your limit.
• Pay bills and monthly credit charges on time - paying early is even better, although it doesn’t affect your credit score.
• Shop for loans (mortgages, car loans, and other loans of that nature) during a specific period of time - like a 30 day period. These will show up as one inquiry if done in this way.
• Avoid misuse of your credit score by identity thieves. Check your credit history at least three times a year. You can access a free credit report through www.annualcreditreport.com. This will detail your financial transactions over the past quarter and help you identify any activity that does not look right.
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