Credit score is a metric that is used by those who work in finance to determine how much of a risk it is to provide you with money on a set of terms. In the end, credit score is a rating that determines how financially trustworthy you are. Credit scores will dictate things like how much money you can borrow, what the terms will be, and much more.
High credit score is nearly always a boon in life, and this is why so many young people are encouraged to get started building it up right away. If your credit is high, you’ll end up paying less on your insurance premiums, and it will also make you more likely to end up with a loan from a reputable establishment.
3 bureau credit score
You can have 3 different credit scores from three credit bureaus, and they will typically vary due to the various calculations that each of them uses.
Some bureaus will have access to credit information that others don’t have. The number of hard inquiries on your credit report will be a factor in determining your credit score, and some of the bureaus may not have access to all of them.
In the end, each bureau uses the same scoring system, but they all have different info at their disposal, resulting in a score that can fluctuate between each of them.
Why should you check your three credit scores?
Getting your all 3 credit scores can give you a more comprehensive idea of where you find yourself when it comes to credit, and you’ll also be able to see the discrepancies in the data.
Many lenders have no legal obligation to report to all three of the agencies, so your credit scores will likely grow in disparity over time.
Make sure that you check your three credit scores and reports often. You don’t want to end up with the bad credit because of some false information.
Best place to get all 3 credit scores
We recommend FreeScore360.com. It is the best credit monitoring service offering full access to credit scores and reports from all three credit bureaus – Experian, Equifax and Transunion.
3 credit bureaus
Credit Reporting Agencies (CRAs) are companies that exist to gather your information and sell it to people who are interested in your credit. CRAs try to learn where you live and work, how you make ends meet to pay your bills, whether you’ve been arrested, and much more.
Once a CRA has all of this info, they will compile it into a single credit report, containing all of the data that a potential landlord or lender would be interested in. All of this data is then used by the person or organization who buys it to determine your interest rate, insurance premiums, and much more.
As you can see, you can’t hide your credit information and pretend it doesn’t exist, as a whole business exists around bringing it to light.
Credit score calculation
Calculating your credit score requires quite a bit of data. Let’s go over the five different aspects that go into credit score calculation.
Late payments
Lenders are trying to decide that when broken down to its essence, is about how much they can trust you and for how long they can trust you with their money. One of the most significant indicators to your trustworthiness as a lendee is going to be how often you pay your dues when the time comes.
No matter if its a working capital loan, any number of credit lines or other loans whether for property or personal reasons, you need to make your payments. The system that is in place is meant to check and measure:
- If you have been tardy when paying your bills and if so, how many times.
- The dates of when payments have been made and if they were after or before delinquency.
- The amount you have currently outstanding and paid up in contrast.
Any problems that you’ve had from declaring bankruptcy to the loss of property and more get factored in and can impact negatively.
Amount owed
Credit isn’t just based on payment consistency or the past; it also factors in your future. A credit score encapsulates the total of what you still are required to pay in contrast with your income sources.
This means that how much you make a year matters in comparison to your total outstanding debt. Total debt means your car loan, mortgage and any other amounts you owe to any other institutions/third parties.
Keep in mind: How much of your credit you still have available, the percentage you’ve paid back of your loan, and the total debt helps lenders determine if you might be in danger of not being able to pay back what you owe.
The essential point is that a lender is going to look for those that can live within their means as much as possible. The higher the ratio of total credit a lendee has that is available to their debt while still having a comparatively high income, the more likely they are to get an approval.
Credit history
While it’s said that having no credit history is bad, having bad credit history is worse. Building good credit history isn’t as hard as you’d think. There are low-risk methods to show credit responsibility that can contribute to a healthy record.
Surprisingly, using your credit frequently is in some ways a key to keeping your score excellent. It’s due to a few other metrics that are used such as:
- The length of time that you’ve had your oldest account.
- How recently you utilized your key accounts.
One technique that many use is to keep accounts that are in good standing open. Using them sparingly will keep your credit score increasing. If you close an account, it may give a boost in the short term but will gradually dissipate.
Credit type
If you lack depth or length in your credit history, one thing that lenders will consider more heavily is the different types of accounts that you have. The greater the diversity of accounts that you keep in good standing, the higher your score will be and the higher chance of your applications being approved. That said, don’t open a bunch of nonsense accounts just for diversity’s sake.
Find opportunities that work for your natural spending/financial habits and let the credit aspect be a side benefit.This can be any online/brick and mortar storefront credit lines, payday loans, car loans, and more.
New credit
One point of scrutiny for lenders is those with a limited history that freshly open a more than a couple accounts quickly or have too many inquiries. It’s easy to suspect why lenders are cautious; the lendee comes across as being imprudent. The other problem is that more than a handful of inquiries into the history of your credit in a limited amount of time can cause your score to take a hit.
Knowing how to spread inquiries out will make it less likely to lower your credit score score. Choosing to do it over the course of a month makes it more likely that your applications will be looked at more favorably.