Your credit report score is a three-digit number that will range from 400 to 900. The average score is 700. Based on your score, you can be denied a mortgage loan, a car loan or even a credit card application. You may also be charged higher rates on a given loan. This is why you don't want to apply for every kind of credit you can get your hands on. Industry experience and research has shown that the higher a credit report score, the less likelihood there is that the person will default on a loan or skip a payment. A person with a higher score is therefore more likely to be approved for credit. A credit report score is based on 80 factors in six groups.
The six groups of credit reports
• Your payment history on major credit cards, department or individual store credit cards, installment loans and mortgages – 35% of total score.
• How much you owe and how much of a credit line you have left. What is most important here: how many of the accounts have balances and how much of the credit line is being used on credit card payments – 30% of total score.
• How long you have had a credit history – 15% of total score.
• New credit and how many times you have applied for new credit lines – 10% of total score.
• Types of credit. This takes into account installment loans, mortgages, credit card balances and the like – 10% of total score.
The variables
Credit report scores have nothing to do with your religion, color, race or sex. However, there are things that credit scoring companies consider that may or may not be under your control.
- The first is your education level. Those with a college degree are given more “points” than those with only a high school diploma. College graduates have been shown to have a higher probability of paying back money owed, if only due to the fact that college graduates usually have higher-paying jobs.
- The number of years worked for a single employer. Scoring agencies prefer people who are stable, because it indicates that their income is not likely to cease anytime soon.
- The number of years lived at a single location. This is also part of the stability factor.
- Homeowners receive higher points than renters. Renters are seen as more transient and more likely to move around.
Tips for a high credit report score
While you may not be able to control if you have to move for your job, for example, there are things you can do to reduce the possibility of losing precious points.
- Fewer credit cards are better than several.
- Paying on time is a must.
- The scoring system looks at how close you are to the limit on your credit cards, how often you have to ask for cash advances and for how much, and what you spend money on. If you owe massive amounts of money because of a shopping fetish, this will look worse than if you had to purchase children's items and groceries. One person will seem like a stable, family person who can handle responsibilities; the other person looks unstable and as if the credit card payment itself could just as soon be spent on more clothes.
By Virginia Zignego