The Five Pieces Of Your Credit Score
Your credit score is based on the following five factors:
Ultimately, the best way to help improve your credit score is to use loans and credit cards responsibly and make prompt payments. The more your credit history shows that you can responsibly handle credit, the more willing lenders will be to offer you credit at a competitive rate.
Did you know? Wells Fargo offers eligible customers free access to their FICO® Credit Score plus tools, tips, and much more. Learn how to access your FICO Credit Score.
Debt To Income Ratio: More Important Than Credit Score
Understanding Your Debt To Income Ratio is simple once you understand the what is being measured.
Your debt to income ratio is exactly what it sounds like.; It compares the amount of debt you have to your income. ;This is a very important number, maybe even as important as your .
A good rule of thumb is to keep your debt to income ratio below 36 percent.; FHA.com states that the Federal Housing Administration has guidelines in place to prevent homebuyers from buying a house that they cannot afford.
The FHA, as well as other mortgage underwriters, will look at two ratios.; For both calculations, the FHA considers the total amount of the new house payment to include principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, and homeowners dues.; Effective income is simply the borrowers gross monthly income.
Why Your Credit Score Matters
You can leverage great scores into great deals on loans, credit cards, insurance premiums, apartments and cell phone plans. Bad scores can hammer you into missing out or paying more.
The lifetime cost of higher interest rates from bad or mediocre credit can exceed six figures. For example, according to interest rates gathered by Informa Research Services:
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Someone with FICO scores in the 620 range would pay $65,000 more on a $200,000 mortgage than someone with FICOs over 760.
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On a five-year, $30,000 auto loan, the borrower with lower scores would pay $5,100 more.
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A 15-year home equity loan of $50,000 would cost a low scorer $22,500 more than someone with high scores.
Since credit scores have become such an integral part of our financial lives, it pays to keep track of yours and understand how your actions affect the numbers. You can build, defend and take advantage of great credit regardless of your age or income.
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Transunion Vs Equifax: Why Is There A Difference In Your Credit Scores
In Canada, there are two credit bureaus that financial institutions use in the credit scoring process: Equifax and Transunion. But while the two companies serve a similar purpose, each one will give you a different credit score. In this article, Ill explain why that is, and show you how you can get an updated credit score every month for free.
How To Improve Credit Scores
Many people haven’t used credit recently, or they have no history at all of using credit; as a result, they have no credit scores. If you’re one such person, you can build credit by applying for a credit-builder loan or a secured credit card.
A credit-builder loan deposits the amount you borrow into a savings account or certificate of deposit; after 12 monthly payments, you will gain access to the amount. In the case of a secured credit card, you deposit an amount with the issuing bank, which then gives you access to a line of credit equal to your deposit.
Once you generate a score, learn how to maintain or improve it using a credit score simulator. The following good credit habits can help grow your scores.
Pay bills on time.Use your credit cards regularly but keep it light.Pay balances in full.Avoid closing accounts too soon.
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Transunion Vs Equifax: Which Is Most Accurate
No credit score from any one of the credit bureaus is more valuable or more accurate than another. Its possible that a lender may gravitate toward one score over another, but that doesnt necessarily mean that score is better.
And while a lender may prefer credit reports and scores from a specific bureau, keep in mind that each situation and application is different, with multiple variables to take into consideration.
How To Improve Your Credit Scores
To improve your credit scores, focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:
- Make at least your minimum payment and make all debt payments on time. Even a single late payment can hurt your credit scores and it’ll stay on your credit report for up to seven years. If you think you may miss a payment, reach out to your creditors as quickly as possible to see if they can work with you or offer hardship options.
- Keep your credit card balances low. Your is an important scoring factor that compares the current balance and credit limit of revolving accounts such as credit cards. Having a low credit utilization rate can help your credit scores. Those with excellent credit scores tend to have an overall utilization rate in the single digits.
- Open accounts that will be reported to the credit bureaus. If you have few credit accounts, make sure those you do open will be added to your credit report. These could be installment accounts, such as student, auto, home or personal loans, or revolving accounts, such as credit cards and lines of credit.
- Only apply for credit when you need it. Applying for a new account can lead to a hard inquiry, which may hurt your credit scores a little. The impact is often minimal, but applying for many different types of loans or credit cards during a short period could lead to a larger score drop.
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How Lenders Decide Who Gets A Mortgage
Gage explains that there are four main factors that mortgage lenders consider when you apply for a home loan; she calls them the “four Cs.”
They are 1) credit history and score; 2) collateral ; 3) cash and 4) capacity .
“Underwriters review the loan based on the above criteria, as well as layered risk factors,” explains Gage. If you have low capacity , you could be denied a mortgage if you don’t have a big enough down payment.;And on the other hand, a risky debt-to-income ratio can be overcome if a borrower has a lot of cash in the bank and stellar credit history, says Gage.
“This is why it is vital to be pre-approved before going house shopping,” advises Gage. “An experienced loan officer will review credit with a potential borrower and oftentimes can provide them a ‘road map’ for better credit via tools the loan officer has access to.”
For instance, Movement Mortgage loan officers can assist the buyers in improving their scores, including a “what if” credit simulator that shows borrowers what actions they can take to improve their ;in order to get the most affordable rates ;
And if you have been putting money into savings, Gage recommends reserving some of your cash in an emergency fund separate from your down payment fund. Mortgage underwriters call this cash your “reserves,” and they prefer to see that you have enough to cover home repairs, property taxes, homeowners insurance and unexpected emergencies well after your closing date.;
Affects Your Insurance Rates
Another area we hardly think about is insurance. Insurance is one of those things that we sign up for because we have to, and then we just ignore it for many years because its confusing, boring, and can be a hassle to dig into. However, if you have bad credit, your car insurance and home insurance might be almost double what they have to be. Again, bad credit is a red flag for those that are trying to understand your character. If their model shows that people with poor credit history get into more wrecks and have more claims than those with sparkling credit, then youll have to pay more, plain and simple.
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Why Do Fico Scores Matter
Imagine a world where every lender used a completely different method to decide whether or not to give you a loan. You would have no way of knowing whether you would be approved at one place and denied at another.
This was actually the case not that long ago. There were all kinds of different ways that lenders would make decisions about extending credit . People were often approved or denied based on inconsistent and sometimes unfair information.
In 1989, FICO Scores were created as a way to help streamline the decision-making process for lenders and make the lending process more consistent and fairer for people like you. Read more about the history of FICO Scores.
Why Are Credit Scores Important
Good credit scores give you access to favorable deals on credit cards, loans, housing, insurance premiums, and more. In contrast, a bad score results in you paying more for these products. Higher interest rates and other costs related to bad credit scores add up over the years. Credit scores play an essential role in your financial life. So, you need to monitor it and take actions to maintain, improve and leverage your scores.
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Where To Get Your Fico Credit Score
Because there is no shortage of companies, products, and websites offering access to free credit scores, it can be especially confusing to determine exactly where to find your FICO credit score.
Fortunately, you can actually get your FICO score free with credit card companies such as Discover, Citi, and Barclaycard. You can also get your FICO score from MyFICO.com.
But heres the kicker:
Your Credit Score And Utilities
As I mentioned, I graduated college proud of myself for not having amassed any credit card debt and being responsible with credit, or so I thought. What I didnt know is that credit history is used for more than just getting approved for a credit card: your credit history is also used when you apply for utilities.
After graduation, two friends and I decided to move into an apartment together. Two of us carried no debt other than student loans, and the other friend had a small amount of credit card, car loan, and student debt. My not-much-debt-carrying friend and I thought we were the credit-worthy ones.
However, when it came time to apply for utilities, I applied first. I was denied but told I could pay a $250 deposit because of my poor credit history. When my other student-loan-only-debt roommate applied for the utilities, she was also denied and told to pay a $250 deposit. We finally applied in much-more-in-debt roommates name and, surprise, not only was she approved, she also didnt have to pay a deposit!
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Monitor Your Credit Report And Score
Checking your credit score right before you apply for a new loan or credit card can help you understand your chances of qualifying for favorable termsbut checking it further ahead of time gives you the chance to improve your score, and possibly save hundreds or thousands of dollars in interest. Experian offers free credit monitoring for your Experian report, which in addition to a free score and report, includes alerts if there’s a suspicious change in your report.
Keeping track of your score can help you take measures to improve it so you’ll increase your odds of qualifying for a loan, credit card, apartment or insurance policyall while improving your financial health.
Fix Your Credit And Improve Your Credit Score
Here are some tips on how to fix your credit and improve your credit score:
If you need help fixing your credit, contact a non-profit credit counseling service that can help you for little or no cost. You can also check with your employer, credit union, or housing authority to see what no-cost credit counseling programs may be available.
It takes time to build up or fix your credit. Unfortunately, there are a lot of fraudsters preying on consumers who want to fix their credit. Avoid any credit counselor or company that promises quick-fix credit repairs, promises to hide your bad credit history, requires upfront payment, or tells you to dispute accurate credit report information or to give false information to creditors.
Here are some resources to help you find a reputable credit counselor:
- Federal Trade Commissions Choosing a Credit Counselor: How to choose a credit counseling service
- Federal Trade Commissions : How to avoid credit repair scams
- Department of Business Oversights : Common questions about credit counseling services
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How Your Credit Score Is Calculated
Learn what your credit score is based on and the many ways you can improve it.
Your credit score is one of the most important measures of your creditworthiness. For your FICO® Credit Score, it’s a three digit number usually ranging between 300 to 850 and is based on metrics developed by Fair Isaac Corporation. The higher your score is, the less risky you are to lenders. By understanding what impacts your credit score, you can take steps to improve it.
Reasons For A Low Credit Score
The key reasons for a low credit score are:
- Delayed repayments: Even one or two delayed credit card payments can have a negative impact on your credit score. The more the number of delayed payments, the greater the negative impact on your credit history and credit score.
- Missed payments: Sometimes you may not be in a position to make your payments. In such cases, it is important to pay the minimum amount due rather than skip the payment completely. If you miss any of your payments, it will be recorded in your credit history and lead to a drop in your score.
- High number of inquiries: Your credit score can be adversely impacted if you have applied for loans or cards with multiple lenders in the recent past. This leads to multiple inquiries in Bureaus which can impact your score.
- Misreporting: Occasionally, there may be an administrative error that results in wrong information being recorded on your credit report. Sometimes, this might be because of fraudulent activity as well. For no fault of yours, these errors could lead to a lower credit score, signalling to future lenders that you have bad credit. On such occasions, you should approach your bank to get this updated at the earliest.
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Which Credit Bureau Is The Most Important
In another attempt to potentially game creditors, consumers often wonder which credit reporting bureau they should most concern themselves with.
For the record, the three major are Equifax, Experian, and TransUnion.
And the words bureau and agency are used interchangeably, so dont fret about those details.
This also explains why there are 3 credit scores, one from each of these bureaus.
How Credit Scores Work
Most people have multiple credit scores, and these numbers change from time to time. Your scores depend on the scoring formula and the credit reference bureau that supplies the information entered into the formulas. The most effective way to track your credit score progress is by selecting one bureau and monitoring one of their credit scores. Note that your bank or credit card issuer may provide your FICO score for free.
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Your Credit Score Is The Most Important Score You Should Know
The most important score you should know!
Believe it or not, your is the most important score you should know. This score provides creditors and lenders with insight into your financial health and helps them determine whether they should do business with you. So, the health of your score is as significant as your physical health.
I know this Score is important, but what is a healthy Score?
The most widely used credit scoring model is the FICO 8, which is used by the three largest credit bureaus, Equifax, Experian, & TransUnion . Scores range from 300 to 850 . When your score is high you have better opportunity for lower lending rates.
Here are the most common factors that affect your credit score:
How To Build A Good Credit Score
Building a good credit score comes down to using credit responsibly over time.;The same is true when it comes to maintaining a good credit score. Here are five things the CFPB says you can do:;
When it comes to monitoring your credit, makes it easy. Itâs free for everyoneânot just Capital One customers. And checking wonât hurt your scoreâa major plus if youâre working to improve a bad credit scoreâso you can check it as often as you like.;
Learn more about Capital Oneâs response to COVID-19 and resources available to customers. For information about COVID-19, head over to the;Centers for Disease Control and Prevention.;
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