|
Credit
Reporting - An Introduction
(page 2)
There are
5 main categories used to calculate a Credit Bureau Score:
- Late Payments,
Delinquencies, Bankruptcies
- Outstanding
Debt
- Length
of Credit History
- New Applications
for Credit (Inquiries)
- Types of
Credit in Use
"Do you make your payments on time?" is
the first thing lenders will want to know, and this is one of
the most important factors in a credit score. However an overall
good picture can outweigh one or two late payments. Payment history
on credit cards, retail accounts, mortgage loans, etc. are all
taken into account. Delinquencies (late or missed payments) may
be considered very important. The recency and frequency of these
late payments will directly impact your score. Approximately 35%
of your score is based on this particular category.
The amount of Outstanding Debt is also a significant factor in
determining the risk of lending you additional funds. The score
takes into account how much of your available credit is being
used. Someone who is close to "maxing out" on many credit
cards may have trouble making payments in the future. The score
also factors in the percentage of installment loans still outstanding
versus the original loan amounts. Approximately 30% of your score
is based on this particular category.
The length of your credit history contributes about 15% of your
score. Your score considers how long accounts have been established
and how long since they were last used.
The number
of new accounts is taken into account. The score looks at the
type of new accounts opened and how many of your accounts are
new. It also factors in recent requests for credit that you have
made. Approximately 10% of your score is based on this particular
category.
Finally the
score will consider the types of credit in use, and whether it
is a healthy mix. This is not a key factor, contributing about
10% of your score, but may be more important if your credit report
does not have a lot of other information on which to base a score.
Maintaining
Good Credit
Credit scores reflect a person's long-term patterns of credit
use and repayment history over time. Scores improve as your credit
performance picture gets better. So an accumulating historical
pattern of paying bills on time and using credit responsibly will
always improve your score. You should:
- Pay bills
on time.
- Keep credit
card balances as low as possible.
- Apply for
new credit sparingly
- Check your
credit report periodically for inaccuracies.
- Correct
any inaccuracies with all 3 national credit bureaus. Fix errors
at the source.
And remember
that over time, you can positively improve your credit score.
|
