Credit reports display your credit scores. It is similar to a school report card that shows average grades. Credit scores are three digit numbers – minimum 300 and maximum 850. It is used to calculate the borrower’s risk of felony on debt responsibility.
Lenders & Credit Scores
Credit scores are determined on the information included in the credit reports. Customers credit scores and reports provided by 3 major credit bureaus differ because information on which they are sketched differs. All the creditors do not report to all the credit bureaus.
Negative events like failure or delayed payments can cause your credit scores to dump down. Alternatively, maintained on-time debt payments surely add to your credit score. If your credit marks are high, you will easily qualify for loans with most favorable terms.
You can save thousands against interest especially on long term mortgage or home equity loan. On the other hand, be prepared to pay high interest rate to get a loan with bad credit in case of approval.
What are Credit Scores?
Credit scores are statistical approximation of person’s creditworthiness. Creditors hardly know borrowers, but they scrutinize your application form. From here, they get the essential details like your address, phone number, salary, family size, your property details, and reason for loan application.
One of the three credit reference agency is used to assess your file. Thus, credit scoring assists lenders to make purposeful assessment and determine the risk percentage linked with loaning to a specific borrower.
Credit scores are based on statistic ‘risk models’ determined by FICO. FICO scores are used by major mortgage lenders and US banks.
Factors Affecting your FICO Scores
Past payment history (35% weight age) – On-time payment improves your score and delayed payments subtracts points. To repair your credit score pay minimum due amount before/on due date.
Credit utilization ratio (30%) – It is the consumer’s credit line percentage that is borrowed against. According to experts, keep credit utilization ratio below 10% and maximum 20%. Occasionally, if it increases over 50% reimburse the debt quickly.
Duration of credit age (15%) – More weight is given to effectively use credit for long time. Keep your old credit accounts open to raise credit score and avoid opening new accounts, which can lower your average account age.
New credit (10%) – People signing up for new credit lines within a short period take points away, so ignore opening new credit lines.
Structure of credit usage (10%) – When you blend different kinds of credit like credit cards, car loan, mortgage or home equity loans rather than just one credit score gets raised. It does not mean you have to take new form of debt intentionally to raise credit numbers.
Generally, to get a loan with very bad credit first check your credit reports, but credit score are not included. Credit reports are provided for free, but to attain credit scores consumers have to pay certain fees. However, with free credit reports you can calculate your credit status roughly.
Nevertheless, the lenders will see your scores, which they obtain from credit referencing bureaus.
Other uncontrolled Factors that Lower your Credit Score
Creditors can lower your credit limitation, which can lower credit utilization ratio. Paying bills regularly on time and not spending beyond limit are the best ways for enhancing credit score.
Mark Farley is an experienced blogger, and he usually writes articles on how to build and maintain good credit scores. You could also visit their website to get a loan with very bad credit.