Key Features that Create a Good Credit Report

A good credit report and score makes all the difference for the average American. With a solid credit history reported from the three major bureaus, it is possible for any individual to own a home or buy their dream automobile. Or be able to simply borrow more money at a smaller interest rate to enjoy things such as vacations or the extra money to buy the things you want. Basically, credit is important, but even more importantly it is important to understand just how it works.

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The credit score

Credit is rated two ways. One way is with a credit report, and the other is with a credit score. The credit score is a number which is most commonly generated by the credit agency FICO, and holds a range from 350-850. The higher the score, the safer and more reliable you are to pay your bills on time. Thus, a lender or bank is more willing to give you more money with a smaller interest rate. Generally most lenders won’t even qualify you for a loan if your score is less than 580.

How is a credit score calculated?

Your credit score is calculated based on: your payment history on past debt, current level of debt, credit age, mix of credit accounts, and most recent credit. By paying your bills on time, and not becoming dependent on credit, you can ensure that your credit score remains at a quality number. However, if you have old credit cards that do not have a balance on it, do not close them. Old credit cards have your payment history on them and if they remain open, the history on them will remain to be reported to the credit bureaus, helping you extend your credit age.

The credit report

The credit score is many times mistaken for the credit score. The credit report is like a report card generated by the three national credit bureaus that lenders can look at the get an idea of how you pay your bills. The difference is that it does not tell lenders if you are a good risk or a bad risk. It provides the information for the lenders to make the decisions themselves from information provided by the bureau. The credit score is a formula of the credit report which helps lenders more easily apply borrowers for loans and is owned by private agencies. The three major credit bureaus are TransUnion, Equifax, and Experian. When applying for a loan or a new credit card, the credit report generated by these three bureaus is the document with which lenders will make their decisions.

If you’re looking to buy a home, the first thing the bank is going to do is pull your credit report if you’re applying for a home loan. Understanding the credit report will better help you understand what you need to do to higher your credit score. If you need help cleaning up your credit for a home loan, contact your local mortgage company.

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