Understanding credit report score
Understanding of Credit Report Score is one of the key requirements to maintain a normal life. Credit has always been a critical part of Americans and hence it is critical to maintain a good credit report history. This index will determine how much it will cost while you buy any of the requirements like house,car, household equipments. Prior to 2001, this credit report score was not known to the consumers. Post 2001 due to the pressure from US Congress and consumer groups legislation was passed which allows the consumers to know their credit report score.
Credit lenders like Experian, Equifax, TransUnion use the FICO method (Fair Isaac Corporation).
The rating system operating model is very similar to the school grading system wherein a school comes up with a weighted average model of rating of various parameters like class attendance, test scores, extra curricular activity scores.
The exact information of the calculation model is a proprietary information of Fair Isaac Corporation. As a consumer we must know the approximate breakdown of the scores which will help us to plan for all the financial requirements of our life.
The score of this system ranges from 300 to 850. The factors which are critical to the scoring pattern are payment history, length of the credit, number of inquiries in the report, the outstanding debt.
35% Payment History. This relates to the consistency of Ontime payment by the consumer. This generally includes payments later than 30 days past due)
30% Holding pattern of Outstanding debt
15% Duration of credit history
10% Modes of credit used ie whether this is installment, revolving, consumer finance
10% recent Openings for credit. This will have a negative effect for a short span of time
This credit report index helps the lender to understand the track record of the consumer and gives confidence of the profile of the consumer about the assurance of paying off the debt with interest. If the credit score is low, there is a bad history of credit re payments on time and hence chances are that the consumer will not be awarded any further loans by the lenders. On the other hand if the credit score is on a higher side it increases the chances of getting financial loans for your life.
Consumers get to receive a lower interest rates in the future loans provided the credit report scores stands on a higher side (typically more than 700 points). Thus handling of outstanding debts is extremely critical for keeping a better credit report score. Another area the consumers must understand is the Universal credit default policy. This policy links the complete history of credit of a consumer across various lenders. If a consumer defaults a different loan the interest on the credit card debt can increase considerably.
To summarize this topic here are few important points to be noted by the consumer.
On time bill payment.
Dont miss any payment cycle. If any default arises, stay current at the earliest.
In case of difficult times, consumer must get in touch with credit counselors.
Annual check of credit payment history.
Minimize Credit inquiries
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