The Secret of Your Credit Rating
There is no doubt about it the economy is in a spiral downturn. Many of us have been facing financial troubles daily; with all of the troubles leading to bad effects on our credit score.
When applying for a loan for any big item, you will find that the number one thing creditors look at is your credit score
There has been a lot of confusion of what a credit score really is and how it is worked out. This article is aimed at clearing up all the myths in regards to what makes up a credit score, by providing you with the simple facts.
Your credit score is derived from five main variables. They include the type of credit, how many inquiries have been made to issue new credit to you, how long your file is, what you owe to others and how you pay your bills.
These five variables affect or weigh on your score differently. Payment history at 35 % and outstanding debt at 30% are the heavy hitters. While depth of file is at 15% and both Inquiries and types of credit are both at 10%, these together make up the total score when all are weighted together.
Looking further into the categories to discover exactly what they are based on, we will press on.
Payment history needs no other explanation. It is the heaviest hitter at 35 % of your credit score. Basically it states if you pay your bills in a timely manner. A bill has a certain timeframe in which you are expected to remit payment, when you do so the creditor reports that. When you are delinquent by more than a month, this also is reported.
Outstanding debt ranks second in its effect at 30% on your credit report. Basically this tells how much you still owe the companies that lent money to you. In order to obtain new financing, this needs to be kept low in order to show that you can meet the repayment schedule. A large burden of debt can be your downfall.
The depth of file weighing at 15% simply looks at the time period of your credit history. Even if you dont want to use the credit card that you opened in 1986, you should keep the account active because the age of the account will reflect positively in your score.
At 10% weights in both inquiries and types of credit against your score. The Inquiries of New Credit show who and how often your report has been looked at in order to extend credit to you, this is called a inquiry; the fewer inquiries against your report the better.
Finally, the types of credit category inventories the type of financing you have received. For instance an instalment loan is more favorable than a financing company
By understanding what makes up a credit score, you can take control of your finances and secure your future!
Wendy Polisi is owner of Finance the Dream, the nations leading Lease to Buy, Lease to Purchase and Rent to Own Program. To learn more about increasing credit scores, please visit them at liferebooted.org ” the blog that tells you everything you need to know about rebuilding your life after financial setback.
Article Source:http://www.articlesbase.com/credit-articles/the-secret-of-your-credit-rating-1114750.html
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August 14th, 2009 at 8:05 pm
Having a good knowledge about the various factors influencing your credit rating can help you a lot in maintaining a good credit score.
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