Credit Score Information 101
The credit scoring system was adopted
during the early 1980's as a way for lenders to quickly evaluate
your creditworthiness. Over time this system was found to accurately
predict financial risk and started to be used in almost all fields.
The auto industry and the real estate industry are the biggest users
with landlords, retail, employment and utility companies.
Hundreds
of different credit scoring formulas are used today for various loan
evaluation purposes. Each credit scoring system is accurate
and correct for its own application. The credit scores you can order
online use an algorithm created for consumers that approximates
these different formulas. Your online credit score may vary a bit
from the score your lender uses, but they should be in the same
range. The one I pulled to evaluate here was very close within two
points of one pulled by a bank a few days earlier. I have noticed
that credit scores can actual vary from day to day even when nothing
new has happened to influence the score.
The
basic credit score from the
three credit bureaus
takes into account several factors from your credit report. The
impact of each element fluctuates based your own credit profile:
-
Payment history - A good record
of on-time payments will help boost your credit score.
-
Credit account history - An
established credit history makes you a less risky borrower.
Think twice before closing old accounts before a loan
application.
-
Recent inquiries - When a
lender or business checks your credit, it causes a hard
inquiry and a slight ding to your credit score.
Apply for new credit in
moderation.
-
Types of credit - A healthy
credit profile has a balanced mix of credit accounts and
loans.
When you are preparing for a major purchase make sure you check your
credit scores and credit reports from all three credit reporting
agencies: TransUnion, Equifax and
Experian.
Looking at your scores and reports a few months before your loan
application will help you get a complete picture of your credit
health.
If
your credit score is a little low, pay your bills on time, reduce
your debt, remove inaccuracies and avoid new inquiries for a few
months to give it a boost.
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