One of the reasons that many people get a credit card is to boost their credit score. They might be looking into getting a large personal loan for a project, a car loan, or even a mortgage and with such large sums of money; a lower interest rate comes in handy. It has no limit to how much it can save someone. One simple blunder on a credit report can be the difference in getting approved or denied for a loan.
Where can I get mine?
It is possible now for an individual to obtain their credit report online for free, once a year from each of the three main credit reporting agencies of Experian, TransUnion, and Equifax. It is critical to check yours every so often for any errors. A wealth of information is stored in the credit report including your open accounts, balances, history of payment, and previous addresses. Quite a few things could be wrong on the report as well so keep a close eye on this. A company could have reported that you missed a payment when you did not or fraudulent accounts that you know nothing about could pop up. It is safer to keep a close watch on all of these factors to protect yourself.
What does this information mean and how is it used?
Banks and credit card companies alike use all of this information to determine what an interest rate will be and how much of a loan or limit can be given. The risk of you defaulting on the loan amount and whether or not you have a history of on time payments is what they are mainly looking for. The amount of open lines of credit in comparison to debt is another factor. For example, if you have 2 Credit Cards with limits of $2,000 each your overall limit is $4,000. Going further, let us say that you have $1,000 of this $4,000 used. Your credit to debt ratio is 4:1 and will be seen as a positive thing. They do not want to see an individual who is given a higher limit use it all right away and then end up not paying them. As a general rule, never use more than 30% of your approved limit on any credit card.
How is my score determined? The FICO credit score, which is used in over 90% of banks, has a formula to it.
?35% is based on payment history. If you have been late, how late, by how much, etc? Keep that in mind if you're ever contemplating a late payment
?30% is based on how much money you owe overall to all of the open accounts you have. If a lender feels like you owe too much already you will not be given any more.
?15% is based on your past credit history. Lenders want to lend to people who have shown a consistent history with repaying their debts.
?10% is based on the types of credit used. A mortgage on a report is more positive than a similar amount that is due to credit card debt.
?The remaining 10% is based on new credit and just how many credit lines have been opened for you lately. They do not want to see you going and applying everywhere.
Keep these hints and pieces of information in mind when applying for Credit Cards and other loans as well.
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