Understand Your Credit Score & Credit Report History
It is important to know what goes into your credit score so you understand what you can do to improve it.
Factors for determining your credit score may include:
- Payment History. Overdue bills or late payments will lower your credit rating.
- Debt Control. Lenders want indications that you're not living beyond your means. Generally, your non-mortgage credit payments each month should not exceed more than 15 percent of your after tax income.
- Responsibility And Stability. Staying at one address and at one job for extended periods of time (usually at least two years) are positive signs.
- Re-Aging. Through re-aging, a credit history is rewritten, giving you a fresh start on that particular account. This can dramatically improve the credit score. In 2000 the Federal Financial Institutions Examination Council (FFIEC) clarified guidelines on re-aging accounts for delinquent borrowers.
- Unused Credit Cards. Although having too many credit cards can have an adverse effect on a credit score, closing these lines of credit will not improve your score. The credit rating formula looks at the difference between the amount of credit a person has and the amount being used. Closing one or more accounts will reduce your total available credit. This, in turn, lowers the percentage of available credit, lowering the credit score. The formula also factors in the length of time credit accounts have been open, so closing an account with several years of history is generally a mistake.
- Credit Inquiries. An inquiry is a notation on a credit history file. There are two kinds of notations:
- "Soft" Credit Inquires:
- A credit bureau may sell a person's contact information to an advertiser purchasing a list of people with similar characteristics.
- A creditor can check a person's credit periodically.
- A credit counseling agency, with the client's permission, can obtain a client's credit report with no adverse action.
- "Hard" Credit Inquires:
When granted a permissible purpose by you—the borrower—such as extending credit, lenders can check your credit history. Hard inquiries from lenders directly affect the borrower's credit score. Keeping credit inquiries to a minimum can help a person's credit rating. Many inquiries on a person's report can be a signal that you are looking for loans, possibly making you a poor credit risk.
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