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What is a credit score?
A credit score
is a sum used by lenders as an indicator of how
likely you are to repay your loans. Your credit
score is generated by a mathematical formula
utilizing the data from your credit report.
Lenders have been using credit scores as part of
the lending decision for more than 30 years.
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What factors influence my credit score?
Various factors
determine your credit score, including the
following:
Payment history
– A good record of on-time payments will help
boost your credit score. Outstanding debt –
Balances above 50 percent of your credit limits
will harm your credit. Aim for balances under 30
percent. 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 Back
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What is an inquiry?
An inquiry
occurs when an entity requests a copy of your
credit report. These inquiries can be made by
credit-granting organizations, such as banks and
retail stores, when you are applying for credit.
Other inquiries, from requestors such as
insurance companies, potential employers, or
rental housing agencies, can be made after you
have given the requestor your consent. The
entity's name will appear on your credit report,
allowing you to monitor who accessed your credit
history.
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How does my credit score affect me?
Your credit
score is an important indicator of your
financial health. Lenders use your credit score
to determine: - Whether or not you are a good
candidate for a loan - What type of interest
rate you will pay.
While your
credit score is a key determinant of your
creditworthiness, lenders also examine the
information on your credit report and your loan
application. Regularly checking your credit
report enables you to: - Be informed of the most
up-to-date information in your credit history -
Correct any inaccuracies, to make sure that your
credit data is a true depiction of your credit
record and increasing your chances of receiving
credit under the best possible terms
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What is a "good" credit score?
There are
several types of credit scores available.
Typically, the higher the score, the better.
Each lender decides what credit score range it
considers to be a good credit risk or a poor
credit risk. For this reason, the lender is the
best source to explain what your credit score
means in relation to the final credit decision.
After all, they determine the criteria used to
extend credit. The credit score is only one
component of information evaluated by lenders.
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How do I improve my credit score?
These common
guidelines and practices will generally help
raise your credit score:
Be Punctual Pay
all of your bills on time. Lateness,
collections, and bankruptcies have the greatest
negative impact on your credit score. Check your
credit report regularly and take the necessary
steps to dispute inaccuracies. Don't let your
credit health suffer due to inaccurate
information. Watch your debt. Keep your account
balances below 75% of your available credit. For
instance, if you have a credit card with a
$1,000 limit, you should try to keep the balance
owed below $750. Avoid "quick" credit fixes. A
good credit score is created over time and
reflects a number of interrelated factors. Avoid
excessive inquiries. A large number of inquiries
occurred over a short period of time may be
interpreted as a sign that you are: - Opening
numerous credit accounts due to financial
difficulties. - Overextending yourself by taking
on more debt than you can actually repay.
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What is credit scoring?
Credit scoring
is a method used by lenders to help decide
whether or not you are a good candidate for a
loan.
Lenders employ
a credit scoring system to determine your credit
score: - Compares information in your credit
report to the performance of consumers who have
similar credit characteristics. - Examines many
credit characteristics including your payment
history, the number and kind of accounts you
have, the number and frequency of late payments,
and any collections or bankruptcies.
Generally
speaking, positive credit characteristics make
your score higher and help you to qualify for
better loans. Negative characteristics make your
score lower and may interfere with your ability
to qualify for the best loan terms.
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How is a credit scoring model developed?
A lender
creates a credit scoring model by using several
criteria: - Selecting a large sampling of
customers - Analyzing the data in their credit
reports to determine which factors relate to
creditworthiness - Assigning a degree of
importance to each of the factors, based on how
accurate a predictor it is in determining who
will repay their loan on time.
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What is a credit bureau?
A credit
bureau, or credit repository, is an entity that
gathers information about consumers' credit
histories. Your credit history includes
information concerning your identity, your
payment habits, and your public record. Credit
bureaus sell credit reports to credit grantors,
such as banks, finance companies, and retailers.
Credit grantors use credit reports to determine
whether or not a potential borrower is
creditworthy.
There are three
major credit bureaus in the United States:
Experian, Equifax, and Trans Union. These three
bureaus provide nationwide coverage of consumer
credit information.
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How do the credit bureaus obtain
information?
Credit bureaus
obtain identification and credit information
from credit grantors, such as banks, retailers,
and collection agencies. Bureaus obtain
monetary-related public record information
directly from the court systems.
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How long do the credit bureaus
keep my credit information?
- The credit
bureaus keep your personal credit history for a
period of approximately ten years. - Closed or
Inactive Accounts - 10 years from the date of
last activity. - Derogatory Accounts - 7 years
from the date of original delinquency. - Public
Records - 7 years from the date of payment or
indefinitely if the Public Record is an unpaid
tax lien. - Chapter 7 Bankruptcies - 10 years
from date filed.
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