Credit scores are numbers that tell lenders whether you're likely to repay loans such as mortgages or credit cards. It is calculated from information in your credit report.
Your credit report includes all the details about your debts and how you pay them, including late payments. Your credit report provides information to creditors that will allow them to assess whether or not they can trust you enough for them. If so, the information can be used to calculate how much interest you should pay.
Typically, your credit report can include up to five years of your loan and credit history. This includes the amount of money you owe on your loans, such as your credit card balances and your mortgage loan, as well as how much you've borrowed. Also included is how often you have missed payments on credit cards and loans.
Equifax Experian TransUnion all three major credit bureaus have your credit report available. Each of these bureaus uses their own credit scoring models and calculations to determine the score.
Most credit scores look at the same factors, such as payment history, how many types of credit you have and the length of your credit history. The main distinction is how weightings are assigned to different factors.
Payment history accounts for about 35% in your credit score. Make sure to pay on time, because any late payment will reduce your score.
The utilization rate also affects your credit score. It is the ratio of your outstanding credit to your available credit limits. You can reduce your utilization rate by paying old bills or increasing your credit limit.
Your credit utilization may increase your chances of getting credit. If you have low credit utilization, lenders will likely be more inclined to lend you money, as they see you as a responsible and reliable borrower. The length of your credit history, your mix of credit and the number of inquiries you make for new credit are also important factors.
There is a slight difference between the credit scoring models used by each of the three major credit bureaus. For example, FICO has more weight in the calculation than VantageScore, which is a newer model that isn't as sensitive to credit utilization.
It is important for those with good credit to be aware that a large gap can exist between the score they receive and the one that they are given by their lender. The discrepancy may be as small as 20 points or as large as a whole score. The difference is usually a result of errors in your credit report that appear only on one bureau's reports. The best thing to do is check your credit files regularly.