How does this affect my financial report and rating?
Credit scoring is a way of rating your credit risk. Lenders use this to quickly see if a loan applicant can qualify for a mortgage.
A low score means you are a high risk applicant. In other words, you are more likely to neglect your payments, so a lender will look at you as being too risky to loan you the money.
Whereas a high score means you are a good risk applicant. You are very likely to make your payments on time, thus the lender is more willing to loan you the money to buy a home.
Purchasing a home usually means more money than you probably have in your savings account. That's why you need a lender to loan you the money. But lenders want to be sure you will pay the loan back, so a rating was developed as a method of measurement.
Anything below a score of 600 is considered low today. Most lenders want to see a score above 700, although there are some lenders that will consider you with a lower score.
Since these scores reflect whether your a good payer or not, you should be concerned with them. It is a good idea to keep an eye on them.
Your rating profile has information on where you live, your payment behavior with past loans, what kind of history do you have with your credit cards and things like these.
They even track how many times you have been more than 30 days late on your utilities, credit cards, or other purchases where you have to make payments.
The rating agencies then apply a number to you. This number is your credit score.
If you have a history of making late payments, well, you will have a low score and have difficulty getting a mortgage to buy a home.
What should you do? Start making your payments on time! You may have to do this for a while before applying for a loan. This will start improving your score.
Different things affect your scoring in different ways. For example, paying your bills on time can eventually raise your score by 35%.
Whereas the number of loans or credit cards with balances can affect your score by 30% up or down depending on what your current balances are.
How long you have had the account open can have an affect also. It may only affect your score by 15%. But that can make a difference whether you qualify for a loan or not.
Thus it is a bad habit to open another credit card and move balances around. Several new accounts may lower your score.
You can see that paying your bills on time has the greatest impact. You might think "they won't mind if I'm late this one time". They may not mind, but you might when you're applying for a mortgage.
Take a look at your credit scoring. What is your score, is it high or is it low. If it is low take some action now, before applying for a mortgage.
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