A credit score is a three-digit numerical expression of an individual which is based on a level analysis of a person’s credit files. It represents the creditworthiness of an individual and plays a vital role in a lender’s decision to offer credit.
Credit reports list your bill payment history, loans, current debt, as well as other financial information. They also show where you work and live and whether you have been sued, arrested, or have filed for bankruptcy.
When it comes to lenders, a credit score helps lenders in deciding if they will give you credit or approve a loan. The report also helps in determining what interest rate you’ll be charged. Employers, insurers, and rental property owners may take a look at your credit report using any of the three major credit bureaus.
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Top 5 Credit Score Factors · Payment history. Payment history is the most important ingredient in credit scoring, and even one missed payment can have a negative …
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The two major scoring companies in the U.S., FICO, and VantageScore, differ a bit in their approaches, but they agree on the two factors that are most important.
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Your FICO Scores are calculated using five categories: payment history, amounts owed, new credit, length of credit history, and credit mix.
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What Counts Toward Your Score — Payment history, debt-to-credit ratio, length of credit history, new credit, and the amount of credit you have all play a …
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Most important: Payment history — Your payment history is one of the most important credit-scoring factors and can have the biggest impact on your …
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For your FICO® Credit Score, it’s a three-digit number usually ranging between 300 to 850 and is based on metrics developed by Fair Isaac Corporation. The …
Credit reporting agencies (CRAs) are in charge of collecting and maintaining information for your credit reports. Each CRA manages it’s own records and might not have information about all your accounts. Although there may be differences between their reports, no agency is more important than the other. Also, the information each agency has must be accurate.
It is advised that you check your credit reports regularly in order to ensure that your personal and financial information is accurate. This will also help in ensuring that nobody’s opened fraudulent accounts in your name. And if you find errors on your credit report, you can take steps to have them corrected.
Free Credit Reports
You are entitled to a free credit report on AnnualCreditReport.com from each of the three credit reporting agencies which are Experian, Equifax, and TransUnion every week through April 2021. You can request all three reports at once or request them one at a time.
What Influences Your Credit Scores
As earlier stated, a credit score is a number that rates your credit risk. It is what helps creditors in determining whether or not to extend credit to you. It also helps lenders decide the terms they offer, as well as the interest rate you’ll be paying. With a high credit score, you can benefit in multiple ways. From making it easier for you to get a loan, rent an apartment, it can also lower your insurance rate.
The information in your credit report that is used in calculating your credit score depends on your:
Payment History (35%)
Your credit payment history is a big factor when determining your FICO scores. Lenders want to know if you are in the habit of paying your bill on time.
Amounts Owed (30%)
This is the amount you owe on credit accounts, like installment loans and credit cards as well as the percentage of your available credit that you are using which is known as your credit utilization rate.
Length of Credit History (15%)
This accounts for how long you have had your oldest and your newest accounts. The average age of all your accounts are also considered and how long it’s been since you’ve used certain accounts.
Credit Mix (10%)
FICO scores also take into consideration your mix of different credit accounts, even though it is not a key factor. These can include credit card accounts, mortgage loans, and auto loans.
New Credit (10%)
This refers to new credit inquiries and recently opened accounts that can influence your FICO scores.
It is important that you ensure your credit report is correct so that your credit score can be also. You can have multiple credit scores, but they are not all calculated by the same credit reporting agencies that maintain your credit reports. Rather, they are created by different companies or lenders that use their own credit scoring system.
Note, however, that your free annual credit report does not include your credit score, but you can get your credit score from several sources. You may get it from your credit card company for free (that is if they offer one for free). You could also buy it from one of the three major credit reporting agencies. As you receive your score, you will be given information on how you can improve your score.
What are the Different Credit Score Ranges?
The credit score can be broken up into five ranges. They include the following:
- Excellent: 800 – 850
- Very good: 740 – 799
- Good: 670 – 739
- Fair: 580 – 669
- Very poor – 300 – 579