.....What your credit rating can
say about you!
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What is a credit score and a credit report?
Your credit score is simply a snapshot of your credit use. It's a brief
overview of seven years of your borrowing history. Your credit report is
the detailed rundown of your borrowing habits. Credit reports are provided
by three major credit bureaus: Equifax, Experian, and TransUnion.
How is a credit score calculated?
A credit score is a value assigned to several criteria used in making
lending decisions. Criteria include the amount you owe on non-mortgage
related accounts such as credit cards, your payment history, and credit
history. Scorers take this information from your credit report and plug it
into formulas that calculate a value representing the amount of risk you pose
to a lender. That value takes into account the track record of other
consumers with similar credit profiles. By looking at this value, or score,
lenders are able to roughly gage whether it's a good idea to extend you
credit.
What is a good score?
Your credit report score is based on a formula developed by Fair, Isaac &
Co. (FICO) or a handful of other credit reporting agencies on a scale
ranging from 300 - 850. The higher the score the better.
What can I do to improve my credit score?
- Check your credit history for errors. It's a good idea to make sure
that the data each bureau has on you is consistent and up to date by
ordering a copy of your credit report about once a year and disputing
any inaccuracies.
- Pay your bills on time. Late payments will work against you, so it is
important to make all loan payments on time even if it means only
paying the minimum balance. Apart from extreme circumstances like
tax liens or bankruptcy (which can remain on your credit report for as
long as 10 years) nothing has as big of an impact on your credit history
as late payments.
- Don't max out your credit cards! You should avoid "maxing out"
your credit lines and strive to maintain low balances. If your cards are
maxed out, lenders may assume that you have trouble managing your
finances.
- Don't apply for too much credit in a short amount of time.
People tend to get nervous when they receive credit card solicitations in
the mail. Scorers treat these solicitations as "spot" inquiries, which do
not affect your score. Whenever you apply for credit, on the other hand,
it's treated as a "hard inquiry" that's factored into your score. Too many
inquiries over too short a time can have a negative impact on your
credit score.
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