When you are looking to take out a loan, the lender is going to check your credit. Your credit score is going to be the main factor in the type of interest rate that the lender puts on your loan. If you have a good credit score, then you are going to be offered the loan at a low interest rate. However, if you have a low credit score, the lender sees you as a risky borrower. Since you are a risky borrower, the interest rate is going to be higher. If you find that your credit score is not as high as you would like it to be, start working on your credit immediately. Here are a few things that you should know about your credit.
Calculating Your Credit Score
Here are the five main factors that go into calculating your credit score; 35% calculated from your payment history, 30% calculated from credit utilization, 15% calculated from length of credit history, 10% new credit, 10% calculated from new credit. There are a few factors that you can't control like the length of your credit history. However, you can do a great deal to help your own cause when it comes to credit. One of the biggest things that you can do is make sure that all bills are paid on time. Even one late payment can cause a huge drop in your credit score. You can also make sure that your credit utilization is under 10%. So if you have a $1000 credit card you do not want to use over $100 at a time. Then pay off the card at the end of each month. The mix of credit can also be utilized for your benefit. It is smart to have a good variety of installment credit, such as a mortgage or a loan, and revolving credit, like a credit card.
Most negative items are supposed to stay on your credit report for seven years. However, negative items often do not drop off even though they are supposed to. There are many other ways that mistakes can occur on your credit report. If a person has a similar social security number, their information may be put on your report by mistake. With negative items that are inaccurate, there are credit repair companies that can help you leverage laws to force creditors and credit bureaus to drop the negative items off of your report. Each time a negative item is dropped, your score can recalculate.
For more information about how to prepare for a loan, talk to companies like US Community Credit Union.