Many people are aware of the important role the credit rating plays in their lives. However, understanding what actually goes into a credit score (the credit score breakdown) might present a bit more difficult. There are several different methods of scoring, but most lenders and banks rely on the FICO method that has been in existence since the 1980s when it was developed by the Fair Isaac Corporation. The three prominent credit bureaus (TransUnion, Experian, and Equifax) all worked with Fair Isaac in order to come up with the FICO method.
Your credit score may be any number from 300 to 850. The average American falls at about 690 which is deemed relatively good credit. However, while this score should secure you a loan, it will not get you the very best interest rates on a loan.
Understanding what goes into the credit score breakdown is the first step in improving your score.
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A collection can result from a debt that has not been paid on time. If you become significantly delinquent on a debt, such as a medical bill or credit card bill, the original company owed will often write off this debt as a loss and sell it to a collection agency. The collection agency will then attempt to recover the money owed.
Can stay on your credit report for up to seven years, making it harder for you to qualify for other loans.
have a severely negative impact on your credit and can show lenders that you may not be able to make payments on the property you purchase.
Whether you voluntarily ask your lender to come and pick up their property or you are forcibly repossessed, the message is the same: you are unable to pay your loan and the lender is taking back their property.
A late payment is an amount of money a borrower sends to a lender or service provider that arrives after the date that the payment was due or after a grace period for the payment has passed.
How much a payment is late and other factors can have a negative impact on a person’s credit score and, indeed, their ability to obtain credit at a favorable rate.
When a creditor believes that a debt is unlikely to be collected, they can write off this debt as a loss. This type of debt is known as a charge-off. Like a collections account, this usually occurs after an account has significant delinquency.
A hard inquiry can affect your credit score and remain on your credit report for two years.
But what does that means? Because hard inquiries can potentially drop your credit scores, they can result in your paying higher interest rates on loans.
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