Issue 27Living Smart
Credit Score Basics
Your credit score is a very important number that reflects your credit worthiness at any given point. Many of us know about it, but don’t fully understand how we get to this number. It is the key to your financial life, and is used by auto loan lenders, mortgage lenders, credit card companies, landlords, cell phone service providers, and new employers to evaluate your credit risk.
Your Credit Score (also known as your FICO score) is impacted by the following:
• 35% Payment History
• 30% Amounts owed
• 15% Length of credit history
• 10% New Credit
• 10% Types of Credit Used
Your credit score can range from 300 to 850. The average score for about 65% of Americans is between 650 and 750. The riskiest consumers have scores below 600. Generally, the higher your score is, the better your credit, and the more likely you are to receive the best interest rates available on loan products.
Improving your score
If you want to improve your credit score, consider the following tips:
• Pay your bills on time.
• Get current with missed payments.
• Understand that paying off or closing a delinquent won’t remove it from your report.
• Contact your creditors or a credit counselor if you’re having trouble.
• Keep balances low.
• Pay off debt rather then moving it around.
• Don’t close unused credit cards.
• Shop for a loan within a focused period of time.
• Apply for secured credit if you’ve had problems.
• Check your credit report annually.
• Don’t open new accounts rapidly if you’re new to credit.
Types of Credit
• Apply for and open accounts only as needed.
• Have credit cards — but manage them responsibly or pay them off monthly! The best thing to do is only keep a balance of at most 20-30% of the credit limit. Ex. If you have a credit card with a $1,000 limit, don’t have a balance above $200-300 at any given time.
• Remember that closing an account doesn’t make it go away and affects your credit score negatively.