You should realize by now that you have been assigned a ?credit score? based on your credit history, but how do they come up with your score?
Every time you apply for a loan or credit card from a lender your credit report?s history and score will be scrutinized. Your credit score will most likely dictate whether or not you will be approved for credit.
Credit scores can range between somewhere around 300 and 850. The lower your credit score is, the higher the risk you are to the creditor. Statically, a lower credit score borrower is much more likely to default on a loan than a borrower with a higher credit score.
You should be aware of what your credit score is before applying for a loan. I suggest that you check your credit and your credit score at least once a year make sure it is accurate. Statistics show that 79% of all credit reports contain at least one error, with 25% containing at least one serious error!
To get your true ?Fico? credit score the information from your credit reports are run through a mathematical equation that outputs your credit score. The three credit bureaus -- Equifax, Experian and TransUnion also have a similar calculation that they use, but it does not give you the same accurate score that a lender would look at to issue your approval. The following information from your credit report is used to calculate your score:
* 35% Payment History -- Do you pay your payments on time?
* 30% Amount Owed ? the amount owed compared to available balance on revolving account.
* 15% Length of Credit History -- How long have you established credit?
* 10% Types of Credit ? variety is the key here.
* 10% New Credit Obtained -- Have you applied for a lot of credit lately?
This information should give you an accurate idea of which factors on your credit report are impacting your scores the most. Remember as well that the more recent an item is the more affect it will have on your credit score A late car payment from last month will hurt your credit score more than a 3 year old collection will.
Original source: http://cleanmycredit.wordpress.com/?p=5
