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Credit Scores
Date: Apr 11, 2005
Contributor: Neva Maio
Behavior, balances affect credit scores
A poor credit history can come back to bite you, such as when you want to take out a mortgage or get financing on a new car.
Your credit report tracks all your lines of credit and loans, as well as black marks such as late payments and overdraft charges. The three credit-reporting agencies -- Equifax, Experian and TransUnion -- compile the information. Lenders then use it to analyze how much of a credit risk you are and determine what kind of interest rate to give you.
Scores range from 300 to 850. The higher your score, the better; only those with a score of 700 or higher are eligible for a lender's best interest rates.
So what factors go into your credit score? Here are the main ones:
• Credit history. This amounts to your consumer behavior: Do you pay bills on time? Just one late or missed payment can significantly damage your score.
• Amount owed. You are considered more of a credit risk if you carry high balances, or have balances that hover close to your credit limit. Try to carry balances no higher than half your limit.
• Length of credit history. Lenders like to see a stable pattern of credit use and on-time payments over several years. Remember, your credit report shows only your current lines of credit and loans. So don't close your older accounts, even if you don't carry a balance. These accounts lengthen your credit history and make you more appealing as a borrower.
• Requests for new credit. Don't open too many new credit cards
at once. Lenders infer you may be having financial woes and may
be unable to pay your bills. Requests for new credit include any
applications for store credit cards, as well as any credit
checks necessary to get a job or apartment, or to refinance
your mortgage or other debt.
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