Any credit you have will be part of your credit report. This includes credit cards, car loans, mortgages and student loans, etc. The credit bureaus or any prospective creditor may use this information to generate a credit score. How credit scores are calculated is not a secret at all.

Credit Score Explained

A credit score statistically compares information about you to the credit performance of a base sample of people with similar profiles. The higher your credit score, the more likely you are to be a good credit prospect. The less risky you are, the better your chances of obtaining credit at a lower interest rate.

When a potential creditor looks at your credit report, they are looking at a report from at least one of the major credit bureaus: TransUnion, Equifax and Experian. These companies collect account and payment information on you from your creditors. Creditors may report information to just one, two or all three credit bureaus.

It's important to know what is in your credit report on each of the three bureaus because since some lenders report to particular credit bureaus, you may even have different credit scores at each of the three. Moreover, lenders do not consult all three bureaus either. Thus, you may be declined for a loan by lenders that request information from certain bureaus and you might be approved by others.

Credit Score Components

A number of factors are used by potential lenders to determine your credit score. Some factors have more influence than others. The most important factors in terms of influence on your credit score result are those who have to do with payment behavior, credit behavior and debt situation.

Payment history: Many of your debt payments are recorded in your credit history, your bill payments, loan payments, credit card payments, store card payments, etc, are all included. Also, if you had delinquencies like late payments or missed payments, the amount of time it took you to correct this situation will also be reflected on your credit score.

Outstanding debt: This includes the amounts you owe on your accounts, the different types of accounts you have and how close your balances are to the account limits. Overdraft agreements, credit card balances, store card balances, lines of credit, etc. are included within this category.

New credit: This is an important factor that includes how many applications for credit you've made and how recently you've made them.

Credit history: Lender also look at how long you've had credit, how long accounts have been open, and how long it has been since you've used each account.

An excellent way to improve your credit score is to pay all of your bills on time, every time! It?s the cheapest, fastest and most efficient weapon against bad credit!

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