| A person's credit score is derived by doing statistical | | | | Understanding a credit report: |
| analysis and it represents the person's | | | | 700 - 850: Excellent Credit |
| creditworthiness. Experian, TransUnion, and Equifax are | | | | People under this category are qualified for the lowest |
| the three main credit bureaus in the United States that | | | | interest rates and fair repayment terms. |
| provide credit scores. Be aware that income is not | | | | 680 - 699: Good Credit |
| analyzed when calculating credit scores. Instead, the | | | | They will usually be offered favorable terms for loans. |
| FICO (Fair Isaac Co.) is used as a standard credit | | | | 620 - 679: Reasonable Credit |
| score scale. An individual's credit risk is calculated to a | | | | Loans are still offered, but not at good interest rates. |
| score between 300 and 850, with the average | | | | 550 - 680: Poor Credit |
| American having a credit score of about 723. | | | | People with these scores find it difficult to have their |
| Financial institutions such as banks and credit card | | | | loans approved. Even if they are offered, they will be |
| companies use credit scores to estimate the potential | | | | charged high interest rates. |
| risks posed by giving loans to consumers and to | | | | Below 550: Very Bad Credit |
| reduce losses due to bad debt. Also, credit scores will | | | | People who have very bad credit must consider |
| determine whether the loan applications are approved, | | | | "credit repair" before applying for loans. Otherwise, it is |
| and if they are, at what interest rates they will be | | | | almost impossible to obtain loans. |
| offered. | | | | Lastly, it is also crucial to know what a credit report is |
| 5 factors that determine credit scores: | | | | made up of: |
| | | | - Identifying information - identifies who you are |
| 1. Timely payment on loans (35%) | | | | - Credit history - your trade lines |
| 2. Total outstanding balance on current debts (30%) | | | | - Public records - existing legal proceedings |
| 3. Length of credit history (15%) | | | | - Inquiries - new credit applications |
| 4. Types of credit accounts owned (10%) | | | | Better financial decisions can be made by knowing |
| 5. New credit applications and the types of accounts | | | | your credit score and how to interpret your credit |
| recently opened (10%) | | | | report. |