What You NEED to Know About Your Credit Score
Perhaps you wish to apply for a mortgage or car loan; purchase life insurance; or move to a new apartment. These types of actions result in companies taking a close look at your credit history. To do so, they contact one, or more, of the 3 credit reporting agencies: TransUnion, Equifax, and Experian.
Of particular interest to these companies is your CREDIT SCORE.
Author: Keynote Support
If you are not familiar with this topic, we recommend that you begin by reading our article All About Your Credit Report.
Besides providing information about obtaining a free copy of your credit report from the 3 credit bureaus, this article provides an overview of credit and its importance to your financial health.
What is a credit score?
A credit score is a number between 300 and 850, based on your credit history, that helps creditors and others predict how likely you are to make your payments, and to make them on time. You have a general "lending" credit score, but also credit scores for different types of lending.
Your credit score is not stored in your credit file, but calculated by the credit bureau at the time a lender requests a credit report, and is provided to the lender along with your credit report.
The formulas and criteria used in calculating a credit score were developed by the Fair Isaac Corporation. Your credit score may also be called a FICO score.
The Fair Isaac Corporation is not the only company, now, that calculates credit scores. Scorex, a credit scoring company owned by Experian, and VantageScore also produce credit scores.
Why does my credit score matter?
Your credit score is what lenders and others rely upon when deciding if they will approve your loan application, credit card application, apartment rental application, or even a job application. And if you are approved, your credit score will determine your interest rate. Credit scores are also used to determine insurance rates, and the amount of deposit you will have to pay for your utilities.
What factors is the credit score based upon?
According to Fair Isaac, and documented in Your Credit Scores, the FICO score is dependent upon five factors:
- Your payment history (about 35%)
- Your current debt (about 30%)
- Length of your credit history (about 15%)
- New credit applications (about 10%)
- Other factors - types of credit, etc. (about 10%)
How can I improve my credit score?
If you improve the way you handle credit, your credit score will improve. Be leary of companies that promise, for a fee, to improve your credit score. They can't. No one can legally remove accurate negative information from a credit report. But you can improve your credit score by following the tips below:
- Pay your bills on time every month. Better yet, pay them early. Most people don't realize that late payments stay on their credit report for 7 years, but getting current, and staying current, will positively affect your credit score.
- Apply for and open new credit accounts only when absolutely necessary. Obtaining a lot of new debt in a short period of time can ruin your credit score.
- If you must maintain a credit card balance, keep it as low as possible. Stay below 50% of your available line of credit.
- Reduce your total debt by paying off credit cards and loans as quickly as possible.
- Regularly monitor the information in your credit report. Dispute any mistakes or omissions by contacting the creditor and the credit bureau.
What is a good credit score?
It depends upon the general economic mood, but as a general rule of thumb, credit scores of 700 or above are considered good by most lenders. Credit scores below 600 are considered risky and lenders may either turn down your application or charge you a higher interest rate.
How can I get a copy of my credit score?
You can purchase a credit score when you request your free annual credit report through AnnualCreditReport.com. Please see our article Your Credit Report!.
The consumer Internet site of Fair Isaac Corporation, www.myfico.com offers your FICO score from either Equifax or TransUnion for about $15.
You can also purchase your credit score by contacting the credit bureaus directly:
Equifax: www.equifax.com or 800-685-1111
Experian: www.experian.com or 866-200-6020
TransUnion: www.transunion.com or 800-916-8800
Each of the 3 credit bureaus offer multiple products and services regarding credit report monitoring, credit scores, and identity theft protection. So do other companies - especially in the area of identity theft protection. As features and prices vary widely, do some research before signing up for a monthly program.
Read the Facts for Consumers article at the FTC website titled Need Credit or Insurance? Your Credit Score Helps Determine Whay You'll Pay.
The Federal Reserve website has a good article titled 5 Tips for Improving Your Credit Score.
Read the article Your Credit Score: How it All Ads Up at www.privacyrights.org.
We hope this information has been helpful. Please see our disclaimer below. Cheers!
Disclaimer: Keynote Support is providing general information in a highly readable format as a service to the visitor. We have made every effort to provide information accurate as to the date of this article, but the reader cannot infer from this article that Keynote Support is providing financial advice. Please consult with your financial advisor.
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