Your credit report shows how each of the three major credit bureaus rate your credit. Since each bureau has its own method of analyzing your financial history, it’s important to look at all three scores. Typically, your payment history and the amount of money you owe are the largest factors in your credit score. Smaller percentages come from the length of your credit history, your credit mix, and any credit you’ve recently applied for or received. Each bureau may collect different information, as well as use a different formula to calculate your score.
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Many people are surprised to discover that closing a credit account may actually have a negative impact on their credit score. When an account is closed, it may shorten your credit history or increase your ratio of used credit to available credit. Conversely, applying for a lot of different credit cards may also be detrimental to your score. Each application results in a credit check, and too many credit checks may be considered a risk. Be careful how many cards you use, and make sure you’re responsible with the amount of debt you consume. Having one or two credit cards, along with a student loan and a personal loan, is much more positive for your credit score.
If you’re applying for a mortgage or another type of loan, or just don’t know where you stand financially, it’s a good idea to obtain a copy of your credit report. Most credit reporting bureaus offer one free credit report per year, so it’s important to take advantage of that. This report provides you with information that could allow you to take action and fix any errors that are found in your credit. It can take some time for updates to your credit report to be reflected in your credit score, so you may want to get started as soon as possible.
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