Whenever people apply for a loan, credit card, automobile loan, personal loan, or mortgage, their credit scores are checked. Why are credit scores so important? What information do they tell credit bureaus? Finally, exactly what factors comprise credit scores? Credit scores are important because they allow credit bureau to make decisions about whether or not extending credit to individuals is a safe investment. Credit scores create a highly accurate assessment that tells creditors how likely it is that you will pay your bills. The higher credit scores are preferable to lower credit scores. Higher credit scores mean that the individual is more likely to make timely payments on the loan. Credit scores are numbers that are the product of a mathematical formula. This sounds like it is a complicated process, but it is really a very simple process. Credit scores are determined by several key factors. The typical breakdown of the factors that determine credits scores are: 35% of credit scores are determined by how you pay your bills. This includes the regularity and timeliness of your payments. In other words, do you have an established pattern of paying your bills on time? If not, this will have a significantly negative impact on your credit scores. 30% of credit scores are determined by the amount of money you owe versus your amount of available credit. This means that they evaluate the amount of your debt and compare it to the credit that has already been extended to you. Individuals who owe large amounts of money and have little to no available credit will have lower credit scores. 15% of credit scores are determined by the length of your credit history. This means that the longer the credit history, the better the credit scores will be. It is important to start accruing credit early and maintaining a clean credit history. 10% of credit scores are determined by a mix of credit. The different types of credit an individual has will be evaluated when determining credit scores. Again, individuals who have too much credit extended to them currently will have lower credit scores. 10% of credit scores consider new credit applications. Individuals who have recently applied for several lines of credit will have lower credit scores than individuals who have not recently applied for new lines of credit. In other words, if you know you will be applying for a new car loan in the next six months, it is not a good idea to apply for three new store credit cards because this will have a negative impact on credit scores. Forward thinking will help you maintain good credit scores. Some of the factors that are not considered when determining credit scores are: Age Sex Race Income Whether you have been turned down for credit in the past Information not contained on your credit report. Once all of these factors have been considered and applied to the formula, accurate credit scores are available both for individuals and credit agencies. However, it is recommended that individuals check their credits scores at least once a year. It is free for individuals to pull their credit report to makes sure that the information contained in their credit report is accurate. Credit scores can sometimes be incorrect, and if you are not habitually checking your credit report every year, mistakes can have a negative impact on credit scores. It is important to understand all of the factors that impact credit scores, especially if you plan on applying for credit in the near future. In order to maintain good credit scores, it is advised to plan ahead for major purchases, consider the key factors used to determine credit scores, and make an annual habit of checking your credit report. If you find errors before applying for credit, you will enter into negotiations with higher credit scores.
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