Credit Report Scores – Important Facts

Credit report scores or credit scores as they are popularly known are tools to measure the credit worthiness of a person. Based on these scores lenders assess the financial viability of the borrower. The credit report scores help tell the lender about the borrower’s ability to pay back the loan, the kinds of interest he can cover and the past financial history of the consumer.

The calculation of the credit report scores are complicated and takes into account a variety of components. Even though the exact procedure of calculation is not known some of the major components of credit report scores are as follows. 35% of the score is based on your payment history. This mainly includes late payments of mortgage, car loans, credit card bills, etc. While paying late payments on any of these will lower your credit score, making payments on time will improve your credit report scores.

The next component which accounts for 30% of your score is the utilization of your credit. 15% of it is based on the duration of your credit history. It has been seen that the longer your length of credit history, the more of a positive impact it has on your credit report scores. 10% depends on the type of credit you use like installments, revolving, mortgage, etc. If the borrower has a history of having managed different types of credit cards then it will have a positive impact on your credit report scores. The last component is for reports on credit searches.

If you have made searches for credit and that too recently, then it will show up on your report. Credit inquiries occur when the customer applies for new credit. This has a negative impact on your credit report scores. There are some other special factors too which can affect your credit score. If you owe money because of a court ruling then you will get a negative penalty on your credit report scores, this negative penalty is even more when the transgression is recent. Also, if you have more than one recently opened consumer finance credit account then it will also hamper your credit report scores.

The 3 Credit Report Scores

There are three different credit report scores in the US because of the three different credit bureaus. The different bureaus have different databases and different information based on the consumer history with each of these bureaus. The most commonly used scoring model for credit report scores is the Fico score. This model is adopted by the different bureaus for calculating the credit report scores of its customers.

The different bureaus are Equifax, Trans Union and Experian. So your Fico scores with these bureaus will decide what kind of loans you can get and the rates of interest as well. Improving your credit report scores will mean that you can get better loans at good rates of interest and that is why you should know about your credit report scores, one free annual report is given by the bureaus and knowing your report will help you improve your credit report scores.