About Your Credit Score

A credit score is a number that is assigned to you and this number represents your creditworthiness. Fair Isaac Corporation (FICO) created this measure of credit worthiness, and that is why it is called a FICO Score. The number is assigned to you based on your credit report information that is available with three major credit bureaus, Equifax, Experian and TransUnion.

How Is A Credit Score Used?

When you apply for any credit (loan, credit card, mortgage, etc.), the lender typically approaches any one of the three major credit bureaus and pulls out your credit information and score. He checks the score to determine if you are worthy of a loan, what interest rate should be charged and what credit limits can be given to you. Many third parties check your credit score and these could include mobile phone companies, insurance companies, property owners, government, etc.

How Can You Get A Credit Score?

To get a FICO score, you must have a financial account running and active for at least 6 months. The three major credit bureaus will latch on to this account and use it for calculating your credit score.

What Is A Good Credit Score?

FICO scores range between 300-850. 300 stands for a poor credit score while 850 means you are close to Warren Buffett. The average American credit score lies between 600 and 700. Anything over 700 is viewed positively and anything under 600 makes you a risky asset.

What Factors Determine Your Credit Score?

Your payment history gets the highest consideration – it makes up 35% of your FICO score. A good, on-time payment history can really boost up the score. Next come your total loan balances, which make up 30% of the FICO score. If you owe more, your score goes down. Your credit history length accounts for 15%. If you have been responsible with your credit for many years, your score bumps up.

New credit is given 10% consideration, and if you keep applying for credit your score will go down. The final 10% is reserved for miscellaneous factors like, are you focused on one particular type of credit, or have you taken loans from all possible sources, etc.

How Can You Fix Your Credit Score?

Your credit score matters a lot. You may be refused loans or given very costly loans if your credit score is below average. Here is how you can fix your credit score:

1. Get a copy of your credit report from all the three major credit bureaus and check for errors or omissions. If you find any, file a dispute with the credit bureau. You must obtain a report from all three bureaus because there is no telling which bureau your prospective lender will approach.

2. Always make payments on time. Late payments influence your credit score and therefore, you must set up appropriate reminders (SMS, calendar) to remind you about your payments. You can also opt for automatic debit so that you are never late.

3. Do your best to reduce your loan. Sell some assets, if possible, and repay your loan. Use your credit card only for necessities. Focus on eliminating higher-interest loans first and then tackle the rest.