Little Known Secrets About Your Credit Score
August 15, 2008
If you have ever tried to borrow money, get a credit card, or buy something on credit, then someone has probably pulled your credit score. Your credit score (at its most basic) is the odds which lending America puts on your ability to pay back money they lend to you. The higher the score, the more likely you are to pay. These numbers come from information found in your credit report.
All the financial activity you have engaged in over the past seven years is recorded in your credit report. If you have filed for Chapter 7 bankruptcy or closed an account that had been in good standing, this will continue to appear in your credit report for ten years.
Credit report companies take the information on your credit history and use a formula to determine a three digit credit score that lenders then use to help determine if you will get a loan and at what interest rate. Up until recently, the process that was used to determine the score was an industry secret. In 2000, a California law gave applicants the right to see their credit score, and the new federal laws give you even more rights to your own information (and to the factors that determine your score).
The breakdown of your credit score is fairly easy. The number ranges from 300 to 900 with approximately 35% of that number being based on payment history, 30% on outstanding debt, 15% on the length of time you have had credit (the longer the better), 10% on the number of inquires on your report, and 10% on the types of credit that you currently have. The companies then compare this to credit performances of other consumers with similar histories and profiles to reach your magic credit score.
Suggestions for improving your credit score:
- Maintain your credit rotating at about 25% of your total credit limit.
- Don’t be late paying. Making payments earlier than necessary does not incur any penalty.
- Shop for loans (mortgages, car loans, and other loans of that nature) during a specific period of time - like a 30 day period. These will show up as one inquiry if done in this way.
- Know your credit score. Each year, you can check your credit score for free by visiting annualcreditreport.com. Doing so will help you prevent problems from escalating until they create large problems.
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