Having a good credit is of utmost importance due to it’s adverse effect on one’s ability to borrow money as well as the terms of that loan. Many people think differently on what has effect or not on one’s credit score. The main categories of debt are secured debt, unsecured debt, installment debt and revolving debt. Having a higher credit score is beneficial in the sense that the lenders concludes that borrower will be able to repay the loan as per the agreed terms. In addition it increases the chance of one’s loan being approved given that there tend to be some lenders with minimum credit score requirements. There is also a chance to benefit from favorable loan terms like low interest rates. That said credit score is calculated based on important factors which plays a crucial role in determining the overall credit score.
Payment history. It adversely affect one’s credit score rating it as low or high. Lenders mostly consider this factor before approving a borrower for financing. Alot of late payments typically affects the overall credit score. It’s good to decrease such late payment cases and avoid carrying credit balances. Therefore it’s good to avoid missing a loan or credit card payment. One have a chance of recovering their credit score by making quick payments.
Credit utilization. This is that ratio including amount of the debt one have access to as well as that currently in use. Typically lenders highly consider whether a borrower make use of a higher percentage of available credit funds due to there being a chance of them missing especially those with alot of payment. It means that bad credit mortgage lower the credit score.
Next is credit history. It encompasses the length of time that has a particular credit and the time it has been on the credit score. This means the longer one had a specific loan it positively impacts the credit score as long as one is in good standing with such credit source. Seeing the history of one ability to pay the loan is what lenders want. Therefore having recent entries on the report does not give lenders a chance to see one’s ability to pay off the loans in the long term.
New credit. Mostly lenders look at one’s new credit. The essence for considering this factor is to give lenders a chance to see how one typically shops for their credit. Multiple application of new financing in a short period of time tends to drop ones credit score.
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