Credit scores are affected by a number of factors like payment record of previous dues, utilization of credit, delay in payment of past loans and are evaluated by credit bureaus to be taken as parameters by lenders for speculating possible repayment behavior of consumers.
Credit Score- the three numbers that the term refers to determines a whole lot of things- from getting approval for a loan, a credit card or a mortgage to the amount of interest you will be charged when you opt for a home loan. However, as a consumer you are often faced with several challenges and questions as to the credit record and credit history, how they affect your chances of getting a loan, how to boost them and plethora of such issues. Here are 7 things that you should know about your credit history and score.
Lenders Judge Your Credit Score: Before granting you an approval for a loan or a credit card that you have applied for financial institutions and credit card lenders look into credit history. This is to check whether there has been any case of delays or defaults in paying your previous dues which in turn helps them to speculate about the likelihood of you paying the present loan on time. Moreover, by such checks they also calculate and determine the amount you are legible to take as loan and the interest rates they would charge you for the same.
Credit Bureaus Calculate the Score: Although the lenders check out your credit record, it is the credit bureaus which are responsible for giving you the score based on your previous credit payment record. In the USA the three major credit bureaus comprise those of the Equifax, Experian and TransUnion which bring out credit reports by looking into a consumer’s payment history with different companies and how much the individual still owes. The credit risk level is judged by VantageScore Solutions and FICO and the models are then used by lenders to speculate an individual consumer’s possibility of repayment on time.
Consumers Can get to Know the Score: If you have been refused a loan or credit card or being charged with higher interest rates because of reasons that point to a poor score on your credit record, you have the right to ask or check out what the score is in reality.
Multiple Credit Applications Affect Score: You might be tempted to sign up for the luring credit card offers which give out fabulous discounts to businesses or when shopping. However, although such applications apparently might seem to have hardly any effect, too many applications and consequent multiple credit checks within a short span of time can bring down your score. Hence, avoid applying for credit unnecessarily especially if you are on the lookout for a student or a home loan.
Utilization Matters: Many consumers are of the notion that credit utilization does not have any impact on the scoring. However, in reality utilization is an important determinant in scoring and is taken as a percentage which can be obtained by dividing the credit balance with the total limit on the credit card and multiply it by 100. The lower is the percentage the better is it for your score and vice versa.
Things which Affect Score: There are a number of things which affect the score of an individual such as delayed payments or failing to pay a debt completely, tax liens which have gone unpaid, non-payment of business credit card dues and the likes. Even medical bills are exempted from such negative impact.
Things that Improve Score: To boost up and make an improvisation plan on your score try paying off any balance that is due at the earliest and be sure to make all payments on time in future. Do not simply close accounts with balances as active accounts with more or less good standing are catalytic in boosting your scores. Finally, rectify errors in your credit report by fighting for them and be sure you are informed about the right credit limits which are equally important.