Credit Score Factors You Must Be Aware Of

Your credit score is a reflection of your financial well being.

Whatever you do financially gets recorded in the credit report.

In turn, your credit score is based on information in your credit report. It is vital as it determines your eligibility to qualify for financial products. Whether you are planning to take out a mortgage, apply for a credit card, buy an insurance policy or look for a job, your credit score in some way impacts the final decision that will be made about you.

If you have ever taken out a loan, applied for a credit card or filed bankruptcy, you are bound to have a credit report. Different market participants make use of your credit report to assess your finances - some say even your lifestyle - and consequently your financial health.

How does your credit score affect you?

There are various components that make up your credit score. They are as follows:

1. Payment history
How well you have maintained your payment schedule makes up 35% of your credit score.

2. New credit
If you obtain new credit, it makes up 10% of the credit score. If you have been taking out many loans lately, it makes a negative impression on lenders.

3. Outstanding balance
The amount you owe makes up 30% of your credit score. You may have multiple debt accounts.

4. Different types of credit you have used
This component makes up 10% of your credit score. It indicates the types of credit you have used. If you have a balanced "mix" of different types of credit, it usually enhances your credit score.

5. Duration of credit history

The length of credit score makes up 15% of your credit score. A longer credit history allows lenders to better ascertain your creditworthiness.

You can assess your financial health by reviewing your credit report.

Information on your credit report stays on for few years. If you have filed bankruptcy, it stays on for a period of 7 to 10 years.

Similarly, if you have faced foreclosure, the same remains in your credit report for 7 years.

It is very important to know that you cannot remove negative information from the credit report on your own.

You may come across companies offering to remove negative information from your credit report for a fee.

This is however not possible. There are no shortcuts to a debt free life and you have to work towards improving your credit rating.

State regulators and attorney generals have been receiving innumerable complaints from consumers about debt help firms that promise consumers they will remove inaccurate information from your credit report. But, many debt help firms charge very high upfront fees and fail to deliver what they promise.

For more information see Your Credit Report - Part One and Your Credit Report - Part Two.

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