How Does It Work?
Your credit history is a reflection of how well you’ve managed your finances and repaid your debts over time. Credit reports from millions of borrowers are compared against each other using a computer program that analyses similarities, assigning a score report with weight given to varying factors. The score predicts how likely it is that you will repay future debt.
Factors Affecting Credit Rank
– Payment History (35%
– Amount of Debts Owed (30%
– Length of Credit History (15%)|
– Recent Credit (10%)
– Types of Credit (10%)
Keep Your Debt-To-Income Ratio at 20%
Creditors look for evidence that your monthly payments on non-mortgage debts take no more than 20% of your net (take home) monthly income. This is known as your debt-to-income ratio.
Your credit history is pulled together into a credit report issued by three companies: Equifax, Experian, and Trans Union. These companies in turn, sell your credit report to lenders so they can review your past credit history.
Your credit report and credit score often vary somewhat from one company to another. Therefore, it’s important to regularly monitor your credit report from all three companies, checking for any inaccuracies.
What Included in Your Credit Report
– List of Debts, – Credit Cards, Car and Mortgage Loans
– Collection Items, such as Phone/Utility/Medical
– Public Records – Tax Liens, Bankruptcies
– Credit Inquiries ( An inquiry is made every time you request
The Cost of Credit – Monthly Payments and APR
The Truth in Lending Act requires lenders to disclose the Annual Percentage Rate (APR), on loan transactions. The APR is the amount you will pay in interest charges per year.
When looking at borrowing, consider how much the interest will cost, in addition to the loan amount and your ability to repay. The lower the rate, the better.
The Bottom Line
A good history will enable you to borrow more money at a lower cost. Try to pay your loan balances on the statement date, rather than the due date and have as much credit extended to you as possible,(this doesn’t mean you have to use it).