Auto Calculator In Trade


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Auto Calculator In Trade

Auto Calculator In Trade

Credit scores have become increasingly important in the last few decades. A mysterious number that somehow represents an individual's trustworthiness is now virtually the sole factor behind whether or not a loan for a car, house, or big screen TV will be issued, and at what interest rate. Once realized, this fact suddenly leads consumers to consider a three-digit number to be of extreme importance, and questions arise.

How are these numbers calculated? Which factors make the biggest negative impact on a score? Should a credit card be canceled once it is paid off? Should credit of all kinds be avoided at all costs?

Answers to these questions can be difficult to find, and there may not be a clear answer to all of them. The exact formulas used to calculate credit scores are closely guarded, and every bureau and organization that deals with credit uses its own equation, though a company called FICO is generally considered to use the most standard and correct calculation method. However, knowing what makes up a credit score and how much a credit mistake affects that score goes a long way to helping everyone better control the future of their credit purchases.

Credit Vocabulary

Before reading further, it is important to be familiar with two basic credit terms and their meanings.

  • Credit Bureau - a company (not a government entity, but a for-profit business) that collects credit information about consumers and calculates credit scores. The three best-known and most often used bureaus, commonly referred to as "the big three," are Equifax, Experian, and Trans Union. Credit bureaus make a large portion of their profit from creditors that pay for credit information on potential customers that need loans.
  • Creditor - a company or entity that loans money to consumers. Creditors are usually banks, but they can also be retail stores, automobile manufacturers, or anyone that loans money. Creditors provide information about those they loan money to to the credit bureaus so that records can be kept and scores calculated. Not all creditors, however, report to credit bureaus.

Payment History

The factor that tends to make the biggest difference in a credit score is payment history. This is basically a record of every payment made to a creditor or other bill-issuing company that reports to a credit bureau. When a payment is late, a negative mark is added to the responsible party's credit report, and the credit score is affected. Late payments are usually not reported until they are 30 days or more overdue, though this is not always the case. Payment history makes up about 35% of a credit score.

Credit Utilization Ratio