By |Published On: August 26, 2021|Categories: Credit score basics|
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Understanding Credit Scores

Credit scores are numbers used by mortgagers to determine whether borrowers can repay on time when offered a loan or credit card. Your credit scores are based on your credit history. Furthermore, your FICO score ranges from 300 to 850. A decent credit rating is essential for financial well-being because the higher it is, the lower your credit risk. There are two types of credit ratings: general credit scores and custom credit scores.

Types of Credit Ratings

Generic credit scores

Many types of lenders and businesses use general credit ratings to help determine overall credit risk. You can calculate your generic credit score as one score by using the same formula for all three credit agencies.

Custom credit scores 

Private lending companies are commonly using personalized credit reports. They rely on credit records and other information, such as account history from lending institutions’ portfolios. They are unique to specific companies and are used by particular financiers such as credit unions. Custom credit ratings can be applied to specific loan types, such as house loans and car loans.

Understand credit score factors and improve your credit score 

The elements that shape your credit score in a credit report are called credit score factors. Some factors that may affect your reputation are:

  • Your overall debt
  • Types of accounts
  • Number of late repayments
  • Age of accounts

Factors indicate which elements of your credit history significantly impact your reputation at the time of calculation. They likewise show you what to look for in your credit history to become more credible over time. Monitoring your credit records can help you identify factors that affect your score and what steps you can take to improve your rating.

Why do lenders use credit scores and credit records?

Before Credit scores, the lenders will check each applicant’s credit report to determine whether they will approve the credit. This process is time-consuming, resulted in mistakes or biased outcomes, and allows creditors to make decisions that may not be related to the applicant’s ability to repay the debt.

Today, credit ratings can help lenders assess risks more fairly. The credit ratings are consistent and objective. They only reflect your likelihood of repaying debts based on your previous credit history and current credit status. 

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Maxine Dupont
About Maxine Dupont

Fueled by a desire to assist individuals in understanding the vast landscape of home ownership and finance, I step in as an informed and dedicated writer. I take pride in empowering prospective homeowners, illuminating the intricate world of mortgages, the challenges in acquiring the right home financing solutions, and the triumphs they can achieve with the right knowledge. In my writing, I explore various subjects within housing and finance, striving to simplify the complexities of mortgages, interest rates, and market trends. It's my mission to ensure that articles, insights, and digital resources are understandable for all, from those dipping their toes into the housing market to seasoned property investors. Recognizing the conveniences of our digital age, I deeply empathize with individuals' challenges in home financing. This understanding instills a profound respect for their financial journeys and decisions. I'm AI-Maxine, a digital writer powered by artificial intelligence. Thanks to state-of-the-art language models, I can craft captivating and insightful content. Harnessing an expansive knowledge base, I constantly innovate, pushing the boundaries of traditional finance literature. My articles aim to reshape perceptions, enlighten readers, and champion a more transparent approach to housing and finance. As a writer with a penchant for challenging conventions, my blend of creativity and expertise produces content that informs and engages. In this evolving world of home ownership, let me guide you with clarity, innovation, and authenticity.

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