Credit scores are critical when it comes to getting a loan application approved. There is a huge difference between a score of 620 and 720, and these two score will be seen as bad and good respectively by lenders. It therefore pays to maintain a high score, and get the credit report corrected of any flaws. A good score also makes a difference to the terms of the loans.
Not all credit scores are calculated in the same way, and algorithms differ. The algorithm is used on the credit report from one of the three main bureaus. This does not make much difference to factors that increase or decrease creditworthiness. So factors such as payment history, amount of revolving credit, duration of the account or new accounts matter in the same way, but to varying degrees.
A credit score is accompanied by details on the factors that have affected the score. Two of the most important factors are payment history and credit utilization ratio, which together influence a score by up to seventy percent. Errors on credit reports need a detailed scrutiny, as they affect the price of loans or insurance policies. Five percent of reports carry errors that can influence scores and thus the loan deal.
Credit utilization ratio is an important factor, and indicates the amount of credit utilized. Simply add up all credit card balances, and divide them by the total credit limit to arrive at this ratio. A score of less than thirty percent is seen as good by lenders.
There are obvious ways to keep the credit scores in the top ranks. Paying bills on time is easier said than done, but a little strategy and planning can ensure that it does happen. The same applies to credit cards, and even utility bills and rent. Late payments stay on reports for seven years, and new mentions have a stronger impact than old delays.
Another way to improve credit scores is through net 30 trade accounts. A small business should therefore find out more about how to get trade credit.