Credit Basics: All You Should Know About Credit Report and Score

Credit is what most people require when it comes to financing their needs. In order to receive credit, they apply to various creditors and finally make the deal with the one that suits them.
Unsecured loans provide the best way to get the funds without risking your assets. These risk free funds help you to get the loan amount ranging from £1000 and £25,000 for the time span of 10 years. Everyone can get these financial assistances with good as well as poor credit history.
Each and every credit decision of a person creates his credit history or a free credit report, which helps him throughout his life in getting mortgage loans, auto loans, credit cards and even in buying insurance policies. Even for renting an apartment, you may need a good credit history.

What is credit report all about?

  • Credit reports are generally prepared by three credit bureaus namely, Experian, TransUnion and Equifax.
  • These three credit bureaus or consumer rating agencies gather information about a borrower�s credit history from the creditors.
  • Any negative listing in your credit report can remain for 7 to10 years. So, if you take wrong credit decisions, it can negatively affect you for a long period of ten years.
  • The good thing is that, if you start afresh, open new credit accounts and manage them responsibly, you can improve your credit report.
  • The creditors before approving a mortgage loan or an auto loan pull the credit report of the loan applicant from one of these credit bureaus. If they find the credit report satisfactory, only then they approve the loan.
  • To monitor his own credit history, a person can place order for credit report with one or all of the three credit bureaus after regular intervals. It is important to regularly monitor your credit report in order to check accuracy and prevent inclusion of wrong information in the report.

How important is the Credit Score?

  • The higher your credit score, the more creditworthy you are in the eyes of the lenders.
  • The three credit bureaus can assign three different credit scores to your credit report as they collect information from different sources.
  • All the three credit bureaus, Experian, TransUnion, Equifax generally provide FICO Scores (designed and developed by Fair Isaac Corporation). But, for the people who have a thin credit file or have no credit history, various alternative credit scores are there, which can be calculated by tracking their utility bill payments, rental payments etc. Some of these alternative credit scores are Vantage Scores, Anthem Scores, PRBC Scores etc.
  • There are certain criteria, which the leading credit bureaus follow in order to construct credit scores. Each criterion is given some specified weightage as given below:
    • In order to calculate FICO credit score of a particular person, the consumer rating agencies attach 35% weightage to the consumer�s payment history. At the time of reviewing the payment history, the agencies check whether the consumer makes on time payments and if there is any public record of bankruptcy, lawsuits or liens.
    • The total amount a person owe, determines 30% of his FICO credit score. In this case, the credit bureaus try to check how much of the available credit, is being used up by the consumer.
    • The length of the consumer�s credit history gets a weightage of 15%, in the calculation of FICO credit score. Generally, a longer credit history helps in getting a higher credit score.
    • Making inquiries for new loans and opening of new credit accounts affect one�s credit scores by 10% weightage.
    • Type of loans that one holds in his credit portfolio and several other factors can affect one�s credit score by a weightage of 10%.
So, it is very important to maintain a good credit record and to do that you should pay your bills on time. It is better to pay off your credit card balances rather than moving the debt between cards. You should also keep the credit card balances substantially below your available credit limit. A conscious effort to maintain a good credit report can make your life a lot easier by helping you in getting credits in future.
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