Statistics from your credit report define what your credit score is. Your credit score is not stored with your credit report, but is generated at the time there is a request to your credit report.
Why Is Credit Score Used?
Anytime you apply for a loan the credit score effectively tells the lender based on a score rating, your ability to repay the loan based on your prior payment history, and your current credit status.
Everyone from banks, auto dealers and mortgage companies utilize this method of credit rating to determine the risk.
There are other factors when applying for a loan, or purchasing a car that include an applicant’s income, length of employment etc. Many times additional household income is taken into consideration as well.
The purpose many times for this is to account for the possibility of a co-applicant being added to the loan should the primary applicant’s credit score or length of employment fall short of meeting the requirements for the loan.
What can impact a credit report or credit rating?
The number of late payments made to a creditor.
These are accounts where payments were discontinued by the borrower leaving a remaining balance that was never paid off.
The total amount of debt.
Inquires made recently against your credit.
This can be a flag to a lender if there are a great deal of inquiries on a persons credit report suggesting to the lender that the applicant is making a great deal of attempts for a loan and can be increasing their debt in the very near future.
This will effect the “Debt to Income” ratio as well as the credit score that many lenders consider, and this can result in a delayed or declined application.
There are regulations in place that protect individuals from the type of information that can be used in evaluating a persons credit worthiness.
The Equal Credit Opportunity Act does not permit race, color, religion, national origin, gender, age, marital status or receipt of public assistance to be used as any determining factors.
As always, the best practice is to apply for credit wisely.