Whether you are purchasing a new car or looking to buy your dream home, your credit score is one of the most important factors in whether your loan application will be approved. A credit score tells lenders how likely you are to pay back a loan on time. The score is a mathematical formula that is reported in a credit report. Some factors that make up a typical credit score include:
- Current unpaid debt
- Number and type of loan accounts you have (i.e., car loans, mortgage, student loans)
- How long you have had your loan accounts open
- Paying bills on time
- New applications for credit
- Whether you have had a debt sent to collections, a foreclosure, or have filed for bankruptcy
Credit reports are provided by credit reporting agencies including Equifax, Experian, and TransUnion. Each agency may use slightly different data, so your credit score may be different.
Most credit scores range from 300 – 850. Usually, a higher score makes it easier to qualify for a loan and may result in a more competitive interest rate. If you are purchasing a house, most conventional loans require a credit score of at least 620. Other loan programs may require a higher score or maybe a lower score.
Maintaining a good credit score is important no matter what your financial plans are. Here are a couple of tips to help you improve your credit score:
- Pay your loans on time, every time. One way to make sure your payments are on time is to set up automatic payments or reminders.
- Don’t get close to your credit limit on credit cards.
- Only apply for the credit that you need.
And most importantly, always check your credit reports for accuracy and dispute any errors right away. You can obtain a free copy of your credit report by CLICK HERE.
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