Good credit is necessary for obtaining a loan or line of credit. In addition to the detailed information listed on a credit history report, each individual is assigned three scores. Equifax, Experian and TransUnion are the three main credit bureaus. A score from one bureau may be very different from the other two. This is because each one receives different information, and not all creditors report to each bureau. In most cases, Experian is the bureau with the most comprehensive amount of information. Every score is based on six main factors.

Credit History

Payment history comprises 35 percent of a score. From a creditor’s perspective, an individual who pays any type of financial obligation late is a risk. They figure that such individuals are more likely to avoid repaying a new debt in full. Although bankruptcy is one of the worst blemishes on a payment history record, collections are also very bad.

Outstanding Debt

The amount of money an individual owes plays a considerable part in a credit rating. Credit cards, mortgages, vehicle loans, lines of credit and several other types of accounts are all items that appear on a report. In addition to this, the amount of available credit each person has is considered. For example, a person who has 10 different cards with a limit of $5,000 each has $50,000 in available credit. As a rule, people who have plenty of available credit tend to use it. Creditors analyzing a report are less likely to offer financing to individuals with large amounts of available credit.

Account Types

The mix of account types an individual has comprises 10 percent of his or her credit score. Higher scores are awarded to people who have an even blend of account types. For example, a person with a balanced amount of revolving credit and installment credit will have a higher score than a person with only installment accounts. In the eyes of a creditor, someone who has a balanced account variety is a better steward of money.

Recent Inquiries

If there are multiple recent inquiries on a credit report, this indicates a risk to potential creditors. These inquiries may hint that outstanding accounts will soon appear. Since most lenders realize such borrowers are unable to afford credit payments, they are hesitant to extend financing.

Stability

When lenders review the past addresses of applicants, they prefer to see very few results. From their perspective, an applicant who is more stable is also more responsible with money. Lenders also favor homeowners. Since they acquired financing for such a large commitment, homeowners are more likely to honor a repayment agreement. However, employment is one of the most important factors. Individuals who remain at the same job for several years are more likely to gain approval for credit accounts.

Length Of Credit History

To get the clearest picture of a person’s creditworthiness, a creditor needs a considerable length of time to compare incidents against. People with a short history or no history are less likely to gain approval. However, if individuals have a lengthy credit history with the same financial institution, they receive more points. Recent information is also important, so it is best to have at least one account that was updated within the past six months.

Avoiding the negative aspects in the previous paragraphs contributes to a better score. It is also helpful to avoid using more than 25 percent of available credit. For example, a person with $100,000 in available credit should use no more than $25,000. When numbers start nearing 25 percent, focus on paying off some debts. It is also important to check credit scores regularly. Each person is entitled to one free copy of his or her credit report every year, so take advantage of this opportunity.

Author Harvey Wakefield is a financial counselor and writes for creditcardhelp.com.au, a site offering credit card comparison help, and reviews of rewards programs and instant approval credit cards.