Have you ever looked at your credit score and wondered, “What does this number say about me?”
A credit score is a simple three digit number that represents your risk level. Financial institutions and credit card companies use your credit score as a snapshot of how likely you are to repay borrowed money on time.
Today, the best known way to capture your credit score is to use the Fair Isaac Corporation better known as FICO which was first introduced in 1989. The FICO model pulls from three credit bureaus: Equifax, Experian and Transunion to help create your credit score.
Originally, credit scores were primarily used for loans. Today, your credit score is everything. Whether you are a looking for an auto loan, personal loan, mortgage, or even looking to rent an apartment, your credit score is pulled and will have an effect on your outcome. Many people don’t realize that employers are also starting to pull credit reports on applicants and your score could influence whether or not you get that offer.
So what does your credit score say about you?
Credit scores tend to range between 350 and 800, with 800 being a prime score to have. If your credit score is below 550 then you are on the lower end of the scale and will have a hard time getting approved for loans. Many financial institutions and credit card companies will see you as a risk for paying back your loan amount.
If your credit score is between 550 to 720, then you are in the middle. So what does this mean? This means that you are likely to get the loan you applied for, however, you will most likely be paying a higher interest rate.
And if you are in the prime, anywhere from 720 and up, then you are in a great place to apply for loans and be approved at the best rates available.
Calculations
The number one question when it comes to our credit score is… “How is my credit score calculated?” We are presented this three digit number that holds so much weight but how is it figured out?
Your credit score breakdown is as followed:
10% Mix of Credit: Do you have a combination of different types of revolving credit loans like credit cards or installment loans like mortgages and auto loans? Having a variety of revolving and installment loans can help boost your credit score.
10% New Credit: Do you get caught up in offers for store credit cards? “Open a credit card today and save 20%” KEEP AWAY! The more credit cards you open the more credit cards you open in a short time, the more risky you become. So beware this holiday season.
15% length of credit: Starting and maintaining good credit habits over a long period of time will help raise your credit score.
30% Capacity: Have you heard of less is more? Well that plays a big role when it comes to your credit score. Let’s say a credit card company gives you a $1,000 limit. Don’t use the full amount. By maxing out your credit cards or lines of credit, you are hurting your credit score. Even if you make payments on time you are still affecting your score.
35% Payment History: Making payments on time is one way to boost your score and practice good credit habits. When the bill comes in pay it, don’t push it aside and wait because then you might forget about it.
Your report
What does your report say about you? To view your credit report, you can check out Annualcreditreport.com this will give you an idea of where you can make improvements and what changes you need to make. You can also request your credit score for a small fee. Another great website to use is CreditKarma.com but, the credit score might not be as accurate as you’d like as it is only an estimate. Either way, be sure to check out your credit report and credit score once a year or before apply for larger loans such as, auto loans, personal loans and even mortgages. This way there are no surprises and you can be sure to get the best loan option for you!
Don’t let a lower credit score set you back. Now you have all the details on how to take control of your credit.
