Knowledge is power, and if you know what's in your credit report and your score it will give you power.
It can give you bargaining power with lenders and financial institutions if you are making a major purchase or applying for a loan.
Your credit report is made up of five main components: * Payment History is 35% of your credit score.
A good credit history can outweigh one or two late payments provided they are not 60 or 90 days old.
Recent late payments will count more against your score than old late payments from five years ago.
This history is made up of information of bank credit cards, department store cards, installment loans, car loans and mortgage loans.
These next items: liens, judgments, bankruptcies, foreclosures, and whether or not your salary has been garnished to pay a debt are considered more serious and stay on your report longer.
A bankruptcy can stay on your report for 7-10 years.
* Outstanding Balances are 30% of you credit score.
It lists your outstanding balances on all of the type of accounts listed above.
Usually from your latest statements.
Having credit accounts and owing money does not mean you are a bad risk.
Owing a good deal of money on many accounts that are near their limits, can mean that you are at risk of becoming over extended and be more likely to make some late payments or miss payments altogether.
* Length Of Credit History is 15% of your credit score.
This takes into account how long your accounts have been established on the whole.
How long specific accounts have been open and how long it's been since you've used certain accounts.
It considers the age of your oldest account and also the average age of all of your accounts.
* New Credit is 10% of your score.
It takes into account how many new accounts you have, how long it's been since you opened new accounts, how many recent requests for credit you have made, and the length of time since inquiries were made by lenders.
If you have a short credit history do not make the mistake of thinking that opening more accounts in a short period of time will help you.
It will lower your score by reducing your average account age, and you will look risky as if you are a new credit user.
* Types Of Credit is 10% of your credit score.
The score considers the different types of accounts you have.
Bank credit cards, store cards, installment loans, finance company accounts and mortgage loans.
This usually is not a key factor unless your credit report does not have much other information on which to base a score.
Based on theses five components your credit is given a score.
-If your score is 720-850, your interest rate will be approximately 5.
73% for a 30 year mortgage.
-If your score is 700-719, your interest rate will be approximately 5.
86%.
-If your score is 675-699, your interest rate will be approximately 6.
40%.
-If your score is 620-674, your interest rate will be approximately 7.
55%.
The rates keep getting higher as the scores in your credit report go lower.
Mortgage rates are not the only ones that are affected by your credit score.
It also impacts the interest rates on any credit cards you apply for, home equity loans or lines of credit, personal loans, and sometimes how much insurance you can qualify for.
You actually have three credit scores, one developed for each of the three major bureaus.
For Equifax it is called a Beacon Score, for Experian it is called the Experian Fair Isaac Score, and for Trans Union it is called the Empirica Score.
It's a good idea to order all three credit reports once a year, review the differences between them, and make any repairs at that time.