What’s Your Credit Score

What’s Your Credit Score?

Is your credit score 700? 650? 600? Lower? What difference does it make! It actually makes a big difference if you are looking for a loan, insurance or other reasons.

A credit score is a numerical value assigned to you based on your past credit history. A typical credit score can range from a high of over 800 to a low of under 500. The higher the number, the better the credit history and better your credit score.

Credit scoring was developed by the Fair Isaac Company , and each of the three major credit reporting agencies have slightly different formulas and credit scores, from each other. However, the basics of credit scoring apply to each of the credit reporting agencies.

Credit scores are used as by lenders as a gauge of credit worthiness . Generally lenders look at credit scores to determine whether a loan is approved, and at what rate of interest. For example, if a consumer is looking to purchase a car, the credit score will determine what rate of interest they will pay. The higher the credit score , the lower the rate they will pay. Conversely, if the borrower has a lower credit score, they would be considered a greater risk and will therefore pay a higher rate of interest.

In addition to lenders, others use credit scores as well. Insurance companies will use credit scores to help determine the premium people will be paying for home and insurance. Also, many employers are starting to look at credit scores to determine whether they should hire them as employees.

A credit score is comprised of information from 5 factors , each carry a specific weight. Your credit score is determined from several factors:

· Credit history (35% of total) – how you have handled your past credit counts the most towards your overall credit score. Past due accounts and slow payment histories will hurt your credit score.

· Amount owed (30% of total) – the amount that you owe and the type of loan will have an impact on your score. Having credit lines that are available will improve your score.

· Length of credit history (15% of total) – the longer you have had a credit history the better it will be for your credit score.

· New credit (10% of total) – many new credit requests and accounts issued will make your credit score lower.

· Types of credit (10% of total) – a good mixture of fixed term (i.e. Auto Loans, Mortgages, etc…) and lines (i.e. Credit Cards, Home Equity Lines of Credit, etc…) will help your score.

Because it is important to have a good credit score, you can take steps to improve your score . They include paying your credit accounts on time, not taking out too many new accounts in a short period of time and not applying for too many accounts in a short time frame. All of these items will reduce your credit score.

Consumers should know what is in their credit reports and what their score is. To view a credit report, consumers are able to get a free copy of their credit report annually at annualcreditreport.com . Credit scores are also available from the 3 credit bureaus: Experian , Equifax and Transunion for a small charge.

Know your score, and look for ways to improve it. It can save you money!