The Factors


Credit reports affect every aspect of our financial lives, including employment opportunities and the interest rates of personal loans such as home mortgages, car loans, and even the interest rates of credit cards. Your credit report is your 'financial fingerprint' and contains information that can be grouped into the categories listed below. (A percentage of the approximate emphasis assigned for each factor is shown in parentheses after the category; however, keep in mind that these figures are not 'absolute' and companies may consider different factors.)


• Payment History (35%)
• Outstanding Debt (30%)
• Length of Credit History (15%)
• Recent Inquiries (10%)
• Current Credit in Use (10%)

The Numbers


Credit scores range from 300 to 900, with the average score being about 750. Naturally, as your score increases, your risk to the creditor (or defaulting) decreases. Industry experience shows a direct correlation between low scores and high default rates. If you have low scores you're going to have a hard time convincing a creditor to make you a loan - or at least one with an affordable interest rate.

But oddly enough, just as your credit history may vary from credit bureau to credit bureau, so can your credit scores. It's possible to have high scores with one and low scores with another. This is one more reason to always monitor your credit report. You don't want mistakes staying on your report for years. If they do, they just become harder to eliminate.

Though your credit scores vary from bureau to bureau, it's uncommon for your score 		score to vary dramatically; although some lenders admit to seeing borrowers with scores that vary by 100 points or more. To combat this, a lender usually averages the varying scores. Of course, that is of little consolation if your scores are 500, 550, and 700 and the interest rate for a borrower with a score of 550 is two points higher than the rate for a borrower with a score of 700. Typically, the discrepancies of the scores are not this drastic. The more common scenario is that of having scores such as 690, 705 and 685.

Don't lose hope if you have a low score. If you think the problem is caused by mistakes on your credit report, order copy of your credit report, check it for accuracy and fix the problems. Most importantly, don't dispair. Start taking the necessary steps to improve your credit score. And if you happen to be in the middle of the loan process, just take a moment to explain the situation. Some lenders will override credit scores if they think your a good risk.