Why is credit so important?

Why is credit important?

Frankly good credit makes it easier to get a loan and will most often provide for a better interest rate and a lower monthly payment.

You should not assume if you have poor credit you can't qualify for a home loan. In fact there are several programs available to you even if you are days out of bankruptcy or are currently in default on your current home mortgage.

So what are credit scores?
A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Based on information in your credit file, the credit reporting company analyzes your information using a complex mathematical model to yield your credit score.

Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent. Your score is calculated from many types of information found in your credit file.

What affects my credit score?
Many different formulas are used to calculate credit scores, but most are based on the following factors:

• Payment history
  A record of late payments on your current and past credit accounts will lower your score.
• Public records
  Matters of public record such as bankruptcies, judgments, and collection items may lower your score.
• Amount owed
  High or maxed out credit limits may lower your score.
• Length of credit history
  In general, a longer credit history is better.
• New accounts
  Opening multiple new accounts in a short period of time may lower your score.
• Inquiries
  Whenever someone else orders your credit report -- a lender, landlord, or insurer, for example -- an inquiry is recorded on your credit report. A large number of recent inquiries may lower your score.
• Accounts in use
  The presence of too many open accounts can lower your score, whether you're using the accounts or not. Before you close your accounts, let us take a look at what you have open to determine if it makes sense to close them. Sometimes closing several accounts can lower your score as well.

Did you know you have the right to get a free credit report annually?
Just visit http://www.annualcreditreport.com/ and you can order it online, by phone or by mail. This central site allows you to request a free report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.