From the moment you become and adult and start acquiring credit, you are building your credit score. That score will follow you the rest of your life and influence the majority of your big decisions, such as employment, purchasing a new home and having credit cards.
What Is a Credit Score?
A credit score is a three-digit number from 300 to 850 developed by Fair Isaac Corporation that creditors use to determine whether they should extend credit to a consumer. The score also helps creditors determine interest rates for loans and mortgages, as well as preapproval deals for credit cards.
Factors That Determine a Credit Score
The Fair Isaac credit score, or FICO, uses information from the three major credit reporting agencies--Experian, Equifax and TransUnion--to determine a person's credit score. According to the Fair Isaac Corporation, five main categories factor into the score. Thirty-five percent of the score comes from the consumer's payment history, 30 percent comes from the total amount of debt, 15 percent comes from the length of a consumer's credit history, 10 percent comes from newly opened credit, and another 10 percent comes from the different kinds of credit used by the consumer.
How a Good Credit Score Affects You
According to Experian, the average credit score ranges between 600 and 750. The company considers anything above 700 to be a good credit score. Consumers with a good credit score are often approved for credit, and are likely to receive the best interest rates on loans and mortgages.
How a Bad Credit Score Affects You
According to Lending Tree, a credit score below 620 is considered "sub-prime." Consumers who fall into the sub-prime category will have a difficult time obtaining new credit. If they do obtain new credit, these offers typically carry high interest rates or other charges, such as annual payments or account maintenance payments.
Improving a Credit Score
A consumer can improve her credit score over time. The first, and most important, step in improving a credit score is to get current on any debts. From there, the consumer must pay at least the minimum amount due on the debts on time every month. Since payment history is the largest indicator of a credit score, this will have the biggest effect. Consumers also need to focus on paying down their debts. A total debt ratio of less than one-third of the consumer's available credit will have a positive effect on his credit score.
0 comments:
Post a Comment