A big part of your financial life is your credit score. Not to be confused with your credit report, your credit score is a number assigned to a person that indicates to lenders:
- if they qualify for the service
- their ability to repay a loan
- the rate they will pay for a loan or credit
Credit reports, the focus in last weeks’ Live Smart Ohio Money blog, provide consumers the opportunity to view their credit history. Your credit score is configured by a mathematical formula which uses the information from your credit report. Scoring systems can differ from one reporting agency to another leading to different credit scores even though the same credit report is used. Since scores can vary – plan to review them months prior to asking for credit or making a large purchase.
Purchase Your Credit Score
Credit scores are either purchased by you or provided to you in certain instances for free – such as being turned down for a loan because of your credit score. One way you can purchase your credit score is from annualcreditreport.com. After you pull up one of your free credit reports you will have the option to purchase your credit score using your credit/debit card or you can call toll-free 877-322-8228 to order credit reports and credit scores. Credit score costs vary but know that you will spend at least $10 per requested score. If the credit score is free make sure you are not signing up for a service “free trial membership”, if this is not want you want, that will eventually charge you a monthly fee.
Items from your credit report that factor into your credit score include:
Payment history – Your payment history usually accounts for a large part of your score. If the record shows late payments on current or past credit accounts – your score will likely be lowered.
Public records – Matters of public record also account for a large part of your score. These items include bankruptcies, judgments, and collection items which may contribute to a lower score.
Length of credit history – Generally, a longer credit history is better and can sometimes have a positive impact on your score.
New accounts – Your score may be negatively impacted if you open several new accounts in a short period of time.
Inquiries – An inquiry is recorded on your credit report when someone else gets your credit report such as a lender or landlord. A report showing a large number of recent inquiries may negatively impact the score.
Accounts in use – If you have too many open accounts, whether you are using the accounts or not, your score can be negatively impacted.
Credit Score Range
The company that first started a credit scoring system decades ago is the Fair Isaac Corporation otherwise known as FICO. There are several companies that create credit scores and a FICO score is a particular brand of credit score. FICO scores range from 300 to 850 and FICO is most commonly used today to evaluate the credit worthiness of a borrower.
The higher the score the better – meaning you are more likely to get credit or insurance – or pay less for it. When you have a high score you represent less of a risk to a lender than those with lower scores. Having a low score means you can be denied credit or a loan. It can also make you pay higher finance charges costing you – not hundreds – but thousands of dollars in the long run.
The following FICO Score Chart may help you to determine where your score is in relation to others.
Score Range Credit Rating
760 – 850 Excellent
700 – 759 Very Good
660 – 699 Good
620 – 659 Below Average
580 – 619 Poor
Below 579 Very Poor
You the Consumer Can Raise Your Credit Score or Maintain High One by:
- Consistently making your loan payments on time every month.
- Using only a small portion of the credit available on a credit card.
- Paying down debt rather than just moving it around, as well as not opening many new accounts at the same time.
- Regularly checking your credit reports to make sure they are error-free.
Tips:
Increase your credit score knowledge even more – go to www.CreditScoreQuiz.org.
The more you know the better chance you will score high!
“What is a FICO Score?” – go to http://www.myfico.com/CreditEducation/articles/ and view this two minute video to learn more.
