Your credit score is a three-digit number that has a significant affect on your ability to get credit cards, car loans and mortgages. Knowing what factors go into your credit score will help you manage your finances to maximize your score. The scores are calculated by the three major credit bureaus: Experian, Equifax and TransUnion.
Factors
The most common credit scoring algorithm is designed by the Fair Isaac Corporation, also known as the FICO score. When credit bureaus calculate your credit score, they take into consideration your payment history, amounts you owe, length of your credit history, how much new credit you've recently applied for and the types of credit you've used. Your payment history and amounts you owe are weighted most heavily while your new credit and types of credit are least weighted.
Credit Score Significance
The credit score matters any time that you want to to get a new loan or line of credit. Instead of relying on personal knowledge of applicants, lenders simply look at the credit report and credit score to determine the creditworthiness of a borrower. If your score is too low, you will not be approved for loans and lines of credit. If you have a positive credit score, you will be able to get lower interest rates because you appear to be a better credit risk.
Variations in Scores
When you request your credit score from the three major credit bureaus, you may notice that not all three scores are equivalent. This is because the information that each bureau has about your financial history may vary slightly. For example, one credit card may report your payment history to Experian and TransUnion, but not to Equifax. While a different card appears on your Equifax and TransUnion reports, but not your Experian report. However, if you see significant differences, check carefully for errors on the report.
Tips For Improvement
One of the best ways to improve your credit score is to pay down the amounts you owe, particularly the amount on revolving credit lines. However, since this may not be an option for everyone, there are other steps you can take such as minimizing the number of new applications for credit and keeping your older credit cards to maximize the length of your credit history. Also, dispute any errors with both your the credit bureau and the creditor.
0 comments:
Post a Comment