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. In this case there has been an increased misconception with regard to what does and does not affect the score. Credit Score is therefore the numbers used by lenders to determine the borrowers creditworthiness since they act as numerical representations in credit report. This means that having a higher credit score is an advantage since it signals to lenders that the borrower have higher chances of repaying the loans as per the agreed terms. The availability of some lenders with minimum credit score requirements benefits the borrower with higher credit score by mortgage pre-approval. There is also a chance to benefit from favorable loan terms like low interest rates. In determination of one’s credit score there are several factors that are taken into account since there is an impact of debt on credit score.
Payment history. It adversely affect one’s credit score rating it as low or high. This factor is highly considered by lenders before they even approve a borrower for financing. Alot of late payments typically affects the overall credit score. To avoid the chances of decreasing one’s credit score it’s good for one to ensure that one do not regularly miss payments and even carrying credit balances. This tend to have an adverse effect on the credit score with regard to home equity. One have a chance of recovering their credit score by making quick payments.
Another factor is credit utilization. In this case it refers to the ratio that includes amount of debt one have access to and that in current use. Lenders also take into account whether one uses a high percentage of available credit funds given that there is a higher chance of a borrower who frequently owns a lot missing a payment. It means that bad credit mortgage lower the credit score.
Next is credit history. The length of time that one had a particular type of credit and how long it has been on the credit report affects the credit score. Therefore longer time with such loan impacts positively on the credit score as long as one has a good standing with the source. Seeing the history of one ability to pay the loan is what lenders want. Those with recent entries in the report have a low credit score.
The last factor is new credit. Mostly lenders look at one’s new credit. They have a chance to see one’s ability to shop new credit. Low credit score is brought about by alot of new financing application in a short period of time.