Credit report
Lenders want to see the borrower has solid history of paying debt on time and in a consistent way. That’s why they refer to a credit report which provides a in-depth look at the borrower’s entire financial history. That history includes types of accounts and any derogatory activities like late payments, collections and other public judgments.
Credit scores
The breakdown below explains how your credit score comes to be.
– payment history (35%)
– amount owed (30%)
– length of credit history (15%)
– new credit (10%)
– types of credit (10%)
A person will usually have three different scores, one from each credit bureau (Experian, Equifax, and TransUnion). The reason is that different credit accounts (ex: credit cards) may report payment activity to only one or two bureaus. That’s why your three scores may be different from each other.
It is important to note that when buying a home, some banks accept a minimum score of 620 (depending on the loan program).
Check out my article, which was featured in The Virginian-Pilot, about how to improve your credit scores.
Photo courtesy of nikcname (Flickr)