What are the factors used to determine your Credit Rating?
The term "credit rating" is used to reflect your ability to manage borrowing. Factors that can determine this include:-
Payment record - a record of bills being overdue, generally being more than 30 days, will lower the rating.
Control of debt - Lenders want to see that borrowers are not living beyond their means. Experts estimate that non-mortgage credit payments each month should not exceed more than 15 percent of the borrower's after tax income.
Signs of responsibility and stability - Lenders perceive things such as longevity in the borrower's home and job (at least two years) as signs of stability.
Re-Aging - Through re-aging, a credit history is re-written and you are given a fresh start on that particular account. This can dramatically improve the credit score.
Credit outstanding - Lenders don't like to see the amount of credit owed bumping up against the credit limit of a card. Generally, a good idea is to owe no more than one-third of your total credit limit on a credit card.
Credit inquiries - An inquiry is a notation on a credit history file. There are several kinds of notations that may or may not have an adverse effect on the credit score.
"Soft" credit inquiries don't affect the credit score and are characteristic of the following examples: A credit bureau such as Experian may sell a person's contact information to an advertiser wanting to offer credit cards, loans and insurance based on certain criteria that the lender has established. A creditor also checks a person's credit periodically. Or, a credit counselling agency, with the client's permission, can obtain a client's credit report with no adverse action.
However "hard" credit inquiries are made by lenders when consumers are seeking credit or a loan. Lenders, when granted a permissible purpose, can check a credit history for the purposes of extending credit to a consumer. Hard inquiries from lenders directly affect the borrower's credit score. Keeping credit inquiries to a minimum can help improve a person's rating. A lender may perceive many inquiries over a short period of time on a person's report as a signal that the person is in financial difficulty and is looking for loans and will possibly consider that person a poor risk. Credit cards that are not used - Although it is believed that having too many credit cards can have an adverse effect on a credit score, closing these lines of credit will not improve your score. The rating formula looks at the difference between the amount of credit a person has and the amount being used, so closing one or more accounts will reduce your total available credit. And the lower the percentage of available credit, the more the credit score will drop. The credit formula also factors in the length of time credit accounts have been open, so closing an account with several years of history is another avoidable credit mistake.
