Credit Score Basics



Buying your first apartment could be less intimidating when you are well aware of the terms and conditions evolving around it, especially the financial necessities that call for the majority of the attention. It’s no-brainer that huge money is required to buy your own home or apartment for which every one of you wouldn’t be prepared to face the situationwith some ready money and thus, requires the support of some accredited lending institutions like the banks.


But, again, not everyone who visits the bank with the request for availing a home-loan would be granted one and even if offered so, getting a pleasing interest rate requires some sensible preparations from you and that is where your good credit score favors you! Maintaining a good credit score is not only essential to secure your first home in a financially pleasing way but also to meet your other future financial goals and expectations, which calls for the basic understanding of it by every one of you.Therefore, to have a strong financial future let’s make our foundation powerful by understanding the credit score related vital basics, which we are here to ascertain!




What is a credit score? Your credit score, if not more, at least equally important as your educational score because based on which the lender deciphers your ability to repay the loan amount on time and therefore, decides to offer you the required loan amount with a suitable interest rate. To simply put, a credit score is a 3-digit number that estimates your credit risk level that shows your honesty as a borrower. Therefore, it affects both your current as well as your future financial status because none of the financial institutions would be willing to aid you with the loan money if your credit score doesn’t substantiate your reliability in repaying the loan money on time.

Hence, to have a trouble-free financial future, it is necessary for every one of you to concentrate on your credit score the way you would concentrate on your other significant goals of your life! The FICO Score Of the available credit score models, the most popular and the widely-used model is the FICO score model sold by the Fair Isaac & Co., which uses the information from the consumer credit files provided by the top credit bureaus to generate the score.

Although the base information upon which the FICO model acts upon remains the same, it may not be the same at all the credit bureaus and again, according to the expectations of the various lending institutions and various lending types there are various versions of the FICO models available and therefore, never expect to witness the same credit score whenever you visit different lending institutions to avail some financial relief for your home purchase!

The other known credit score models are Vantage score, Insurance score, lender-based scores and so on.


The factors that determine your credit score


Almost, all the available credit score models decide your credit score based on the below-mentioned 5 significant factors that depict, how good as a re-payer you are. But, the main difference comes in the form of the percentage of significance considered for eachof these factors and thus, the credit score varies widely across the different models and, also, for the same model but with different versions as in accordance with the different crediting types and the institutions.


1. Your Payment History


Your payment history, as the name suggests, speaks about all your payment characteristics like how quickly you make your payments, any late payments or missed payments, the number of occurrences of such delinquencies not only for thecredit cards you behold but also for your other credit accounts like the auto loans, home loans, investment properties, student loans and so on.


Therefore, to maintain a good credit score it is necessary for you to make all your credit payments on time to avoid impacting your score negatively!


2. Your Account’s Active Duration


Suppose you are a recent credit buyer, say, less than 6 months then, your payment habit could not be easily understood as that of a person who has a credit account for more than a year or two. In such cases, your credit score is likely to be impacted negatively as the lender is at the higher risk of lending the money to a not-so-scrutinized credit buyer!




3. Credit Utilization Factor


Just because your credit limit is 4000 bucks you need not utilize it to the fullest every month as it not only portrays you as a spendthrift but also impacts the credit utilization factor that forms as one of the major attributes for deciding your credit score. If your credit utilization ratio is around 7 then you are well-rated by the crediting bureaus and thus, would be offered with a decent credit score provided, all other factors are also taken care of!


4. New Credit


Opening as many new store credits for that petty 10% discount might deem sensible to you but not for your credit score evaluator! Yes, your credit score is also based on the number of new accounts you have opened recently and frequently as it shows your financial position at a greater risk because too many credit accounts simply mean too many immediate cash requirements for you, which doesn’t seem pleasing to your evaluator. Logic, isn’t it?


5. Types of credit used


Although a lesser significant factor compared to the other 4 factors mentioned above, needless to say, this also decides your credit score! The credit score evaluators believe that variety of credit accounts one possess shows his/her ability to handle multiple debt varieties and amount at a time. But, for that do not immediately open an unwanted credit type as it may impact your ‘New Credit’ factor! Whatever credit account types you have, maintain them appropriately and get well-rated all the time!your first apartment



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