Do you know your Credit Score?
Today, credit scores are being used to determine more than if you will default on a loan or not. Insurance companies are using credit scores to determine if people will make more claims against their insurance policy. When renting an apartment, low credit scores may cause your apartment application to be turned down. Credit scores are a factor in the amount of security deposit you will have to pay for your telephone, electricity or natural gas service. Your credit score also has an important impact on the interest rate you will pay when you borrow money.
So what is a credit score? A credit score is a three-digit number based on your bill-paying history and debt profile in comparison to other borrowers who lenders use to determine the likelihood of certain credit behaviors. Your credit score is the FICO® score developed by Fair Isaac Corporation. FICO scores range from 300-850, higher scores being better. Today, most people are in the 600 and 700 range.
Credit scores are determined from the credit-related information on your credit report. FICO uses the following five categories to determine your credit score:
1. Your payment history – 35% of your score
Late payments, bankruptcies, and other negative items can hurt your credit score. A record of on-time payments helps your score.
2. How much you owe – 30% of your score
The amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using are all evaluated. The more you owe compared to your credit limit, the lower your score will be.
3. Length of your credit history – 15% of your score
A longer credit history increases your score.
4. New credit – 10% of your score
Recently applied for or opened new credit accounts lower your credit history.
5. Other factors – 10% of your score
Several minor factors can also influence your score. If you have a mix of credit types on your credit report – credit cards, mortgage or auto loans, or personal lines of credit – they can improve your score.
Where can you find your credit score? There are many different places to find your credit score. The three credit reporting agencies are Equifax, Experian, and TransUnion. However, not all credit report agencies give you the same score and some places only give you an estimated score. The following are a few recommended places where you can get your credit report:
1.
Annual Credit Report Service
Congress recently established this web site for consumers to get their credit reports and credit scores from the three national credit reporting agencies. They offer one free credit report each year.
www.annualcreditreport.com
2.
MYFICO.com
The consumer web site of FICO.
www.myfico.com
3.
Mortgage Lenders
This score is the actual score used to evaluate your application for a mortgage and is free when applying for a mortgage or home equity loan. Contact your mortgage lender for details.
4.
Individual Credit Reporting Agencies
Each credit reporting agency offers a different type of credit score to consumers.