Credit Report Scores
Credit report scores are used by lending institutions to determine your credit-worthiness. Credit scores offer creditors a systematic and efficient way to evaluate individual credit applicants, and are determined by FICO (Fair, Isaac & Co) which are provided to the three major credit bureaus.
Most people's credit scores are between 300 to 850. To be considered as a good credit risk, you should have a credit score of at least 660. Many mortgage lenders generally require credit scores of at least 620 to consider you for a loan. Statistically, people with scores between 620 and 659 are three times more likely to default on a loan, and people with scores under 620 are eight times more likely to default.
How Credit Report Are Determined
Since a higher score equates to lower risk for lenders (and lower interest rates for you), it's important to be familiar with how credit scores are calculated. There are five categories of credit report data that are used in the calculation of a credit score: payment history and delinquencies, outstanding balances on your accounts, the types of credit accounts you have, how long you've had the different accounts, and the number of recent credit hard inquires (by lenders when you apply for credit) in the last year.
All the factors are given different weights in the calculation of your credit score. But the most important factor is your payment history going back 7 to 10 years. On-time payments help boost your score, while delinquencies, liens, and bankruptcies will lower your score. The older the delinquency or judgment, the less impact it will have on your score. For a more in-depth discussion of the various factors, check out our article on the elements that determine your credit score.
Improving Credit Report Scores
It is important to remember that credit scores change over time in relation to your credit practices. Here are some ways to build up your credit rating.
- Pay off outstanding balances or at least pay down as much as you possibly can (credit scores rise as you debt load decreases).
- Review your credit file, and request that any outdated or erroneous information be removed (delinquent marks from creditors will lower credit scores).
- Don't apply for more credit (which is reflected by the number of inquiries, and thus lowers credit scores).
- Stay current on your payments (late payments lower credit scores).
- Keep accounts that you've had for a long time open (established credit lifts credit scores).
- Close out newer accounts with high limits that you aren't using. Lenders realize that you might max out that credit in the future and then be unable to pay all your bills.
Below you will find more information about obtaining your credit report score, and the laws that protect your credit:
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