Your credit profile is made up of your creditworthiness, credit score, credit history and credit report. These essential components are what lenders analyze when deciding to give you a loan.
Your credit report is the main component a lender considers when determining your credit worthiness. The three main credit bureaus – TransUnion, Equifax and Experian – plays a major role in their decision. They keep a record on file with your credit history.
Creditworthiness is a lender's willingness to trust you to repay your debt/s. A creditworthy burrower is one a lender considers responsible, willing, and able to make loan payments per their agreement.
A credit score is a grading system used to measure and understand the quality of your credit report. It is calculated using a computer algorithm, ranging from 300 which represents an extremely high risk and 850 which represents an extremely low credit risk. Credit scores are also used to determine rates. The higher your score the better your rates.
Accounts for 35% off your credit score. It has the most impact on your score. If you make late payments or less than the minimum due, your score will be negatively impacted.
Accounts for 30% of your credit score. The amount of money you owe on your credit lines greatly affects your score. The more credit you open, the more your score is greatly impacted.
Accounts for 10% of your credit score. When you apply for new credit, a “hard pull" is done on your credit report. Normally, these aren’t major concerns, but too many in a short period can raise red flags for lenders.
Accounts for 15% of your credit score. A large amount of your credit score is determined based on the length of time you’ve been using credit cards. This is why closing credit card and loan accounts that have been opened for a long time can hurt you in the long run because it decreases the average length of credit history on all your accounts.
Accounts for 10% of your credit score. There are four main types of credit-revolving, charge cards, installment, and service credit. The more diverse, the better your credit score.
This is a credit line where you are expected to make payments toward purchases on a regular basis. The balance is carried over to the next billing cycle, and occurs interest on the amount.
Similar to a credit card. The only difference is, the balance is not carried over to the next billing cycle. Instead, you are required to pay your balance in full every month.
Money burrowed from a lender that you are expected to repay in regular installments.
These are utilities, telephone bills and specific memberships that require you to make payments are made on a monthly basis.
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A low credit score prevents you from obtaining loans, credit cards, rental housing, and more. Take charge of your credit today and your overall financial life
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