Credit Score is a number that is necessary for loan approval or to avail of any other credit offer. Lenders or financial companies mainly check for the credit score and decide whether to offer loans or not. Credit Scores are generated with different algorithm models by using the information from the credit report.
Basics of Credit Score
- Credit scores help the lender to decide whether to sanction a loan or not.
- To determine that lenders check on your borrowing history. If your credit history is good, then it will help you get loans easily.
How to Improve Credit Score:
- Check your Credit Report
- Correct if any errors occurred in your report.
- Do not close old credit accounts.
- Lower your balance on credit cards minimum of 75% or less than the available credit
- Pay bills on time
- Do not open multiple or new credit accounts.
Types of Credit Scores
- There are different credit scores and different models to compute these scores.
- The most popular models are FICO Scores
- The popular credit bureaus are Equifax, Experian, and TransUnion.
- Check specifically for what type of score is being used for your credit.
- Example FICO Score is used to determine home and auto loans.
- These credit scores determine, how much debt you paid, the remaining balance to be paid, payment time, etc.
- Credit Scores range from 300 and 900.
How Credit Scores are Determined:
- NH/NA: No History or No account
- Payment History: 35% Missed Payments/Defaulted on Loans
- Current Debt: 30%The percentage that can you Owe & crossed the limit on the credit cards
- Length of Credit: 15% New credit/Long payment history and paying it back
- New Credit: 10% Applied for multiple loans in past history.
- Types of Credit: 10% Mix of different debts like home, auto, credit cards, etc.
What is the Impact on Credit:
- The activities that make difficult to measure credit score are with in the 5 categories.
- No Credit Bureaus will real such specific activity.
- To Score well the simple thing is to keep your available credit mostly unused.
- Payment History + Current Debt accounts for nearly 2/3rd of the score.
- Credit bureaus always keep a record of late payments, percentage of missed payments, so that the lender can penalize the payments.
- The faster you clear the payment, the stable the score will be.
Check your Credit:
- Free Credit Reports can be obtained from the credit Bureaus.
- But Credit reports do not include the scores, but some may give the scores also.
- Many mobile apps nowadays simply with signing up with the accounts are giving free credit reports to the customers.
- Tracking the credit report is a must as it sometimes may contain errors.
- Correct those errors to get the profit of the score.
How to overcome bad credits:
- Pay off delinquent bills/accounts
- Negotiate a payment plan with the lender
- Avail secured card to rebuild your credit
- Check your report and try to resolve if any errors found.
How to get approval:
- There are many terms and conditions to get approval for a loan, credit score alone does not approve loans, but a positive credit * report will have a good impact. So you could get the loan. But still, other factors have to be considered to avail of the loan.