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Your credit scores are not the only factor lenders consider in lending you money, but they are the most important one. (Lenders will also consider your income, assets, employment, and other factors, as discussed in the financing session). Credit scores were created to help lenders compare people who apply for loans across the board without being subjective. Lenders only want to lend money to those who they think have the ability to pay it back. After all, it is their money.
The credit score supplied by Fair, Isaac and Company (FICO) is the most widely used credit score by lenders. Most Americans have credit scores ranging between 600 and 800. A low credit score is less desirable and may cost you more to borrow as lenders usually charge a higher rate to compensate them for the higher risk of default.
Factors that may help your credit:
On-time payments
Length of credit history --the longer the period you have established credit, the better
Stable employment
Anything opposite to the factors below
Factors that may hurt your credit:
Late payments or missing payments
Maxing out your credit limits or carrying a high balance
Credit inquiries or multiple applications in the last 6 months for a loan, credit cards or department store cards (multiple inquiries for a loan within a 2-4 week period may not hurt you as lenders understand that you were shopping for a mortgage. Inquiries made by you to your own credit does not impact your credit score.)
Bankruptcy in the last 7 years
Too many open credit accounts (4-6 cards may be enough to keep you in a good range)
Know Your Credit Before Applying For A Loan
Before you apply for a loan, check out your credit. It is better for you to learn your credit scores before lenders do. That way, you will have time to correct mistakes or errors, and you will have time to improve your credit scores if necessary.
The three major credit bureaus that keep track of your credit are Equifax, TransUnion and Experian. You should check your credit from all three credit bureaus because they may not track the same accounts and they do not share data with one another. As a result, each bureau may give you a different credit scores. Lenders usually look at all three scores. For a fee, you can view your single credit reports from the credit bureaus or obtain a combined report.
Some sites offer "free" credit reports. But beware that the "free" offer usually includes some type of credit monitoring program that will cost you money unless you cancel within 30 days.
You can order a combined credit report from three credit bureaus from the companies below:
myFICO.com
TrueCredit.com
ConsumerInfo.com
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