Credit Scores and Why They Are Important!
Lenders use credit scoring systems to determine if you would be a good risk for credit cards, auto loans, and yes, mortgages. Many companies use credit scores to decide whether to approve you for a loan and on what terms.
Information about you and your credit experiences is collected about you from your credit report. Credit scoring awards points for factors like your bill-paying history, the number & type of accounts you have, whether you pay your bills by the date they’re due, collection actions, outstanding debt and the age of accounts; these help predict who is most likely to repay a debt. A total number of points—a credit score—helps predict how creditworthy you are—how likely you will repay a loan and make payments when they are due.
To develop a credit scoring system, a random sample of customers are analyzed to identify characteristics that relate to risk. Each characteristic is assigned a weight based on how strong a predictor it is of who would be a good risk. A creditor’s scoring system may not use race, sex, marital status, national origin or religion as factors.
Scoring models usually consider the following types of information in your credit report to help compute your credit score:
1. Have you paid your bills on time? Late? Collections? Bankruptcy?—negative score results.
2. Are you maxed out—the amount of debt compared to the limits—negative score results
3. How long have you had credit?
4. Have you applied for new credit lately? Too many new accounts could bring negative score results
5. How many accounts do you have and what kinds of accounts are they?
You can improve you score by paying your bills on time, paying down outstanding balances, and staying away from new debt.
You can also take a class from approved credit counselors like A Consumer Credit Counseling Service of the Mid-Ohio Valley at 304-485-3141 on Murdoch Ave. and improve your score.
In addition to credit scoring, the amount of your down payment, your total debt, and your income are considered when lenders make a loan.