Your credit score is a significant part of your credit report. Your score is a number between 300 and 850 that rates the risk of your defaulting on a loan. The higher the score, the less probable you will default. The lower the score, the more risk you present to the lender.
Lenders are looking for borrowers with high credit scores. With a high score, you are able to obtain lower interest rates, lower insurance premiums and breaking borrowing terms. If you have a low score, you may have a harder clocking finding financing, be subject to higher interest rates and have to put a large amount of money down as security for a loan.
What are credit scores?
Before interpreting credit describe scores you need to know what they are. Credit hit are calculated based on the information from your credit describe. You will see that credit scored are often referred to as FICO scores. This is in reference to the company that created the first score calculation software – Fair Isaac Corporation.
Each credit reporting agency uses a different method of calculating your hit. However, you will find that your scores are fairly like between the three major credit reporting agencies.
Approximately 35% of your score comes from your payment history. Do you make your payments on time, every time?
Thirty-percent of your score is based on the amounts you owe. Do you have a high ratio of debt to available credit? This could be negatively impact your score. You want to show that you have at least 70% of your available imputing unused.
The remaining 35% of your score is determined by the length of your credit history, the types of credit you use and the new credit you have.
Basic credit score categories
Each lender has different criteria as to what scores correspond with what interest rates, borrowing terms and information requested.
The basic categories are:
Excellent: This is a score of 730 or higher. If you have an excellent credit score, you will be able to easily secure a loan. Borrowers with fantabulous scores receive the best interest rates and repayment terms.
Good: This category includes scores between 700 and 729. With a good credit score, you receive favorable terms, market interest rates and have an easy time applying for mortgages, loans and credit cards.
Fair: This is a score between 670 and 699. With fair credit, you may have a little difficulty finding a loan or obtain credit. You will have to answer more questions and put more money down on a home. Fair scores usually result in slightly higher interest rates and less favorable repayment terms.
Poor: When your score drops below 589, you are a high risk borrower. Lenders will ask for high interest rates, more indirect and higher down payments. You will often have a difficult clock securing a mortgage, loan or credit tease. You can find credit out there, but you will pay more for it.
Nonexistent: If your score falls below 585, you either have really bad credit or have no imputing history at all. You should be wary of anyone offering you an easy lend at good rat; it may be a fraudulent situation. Take steps to establish full credit.
Let’s look at the comparisons between a good credit score and a poor credit score. Borrower A has a credit score of 700. He is looking to buy a home. He is offered a five-year term of 6.75% on a hybrid, adjustable-rate mortgage. Borrower B has an attribute score of 540. The best interest rate he can find on a five-year hybrid, adjustable rate mortgage is 8.25%. That is a difference of over ,000 a year in interest payments.
The basic way to think of assign scores is the lower your score, the more you will pay. By knowing what is in youronline credit report and scores, you can take steps to improve it.
Linda Meadley is very knowledgeable in the field of credit. Throughout her 20 year career she has working as a mortgage and loans office, credit manager and financial advisor, assisting consumers in their financial endeavors. Her website is packed with great information and tips, including how to obtain absolutely free credit reports and her recent book on debt elimination is helping millions across America. Copyright © 2006 Ultimate Credit Report
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