Credit Score Basics
Your credit score gets checked whenever you try to apply for a credit card, apply for a loan, or make any kind of credited purchase. Your credit score is basically a number that represents how trustworthy the business world believes you to be as far as making your payments is concerned, a higher number indicating more confidence in your ability to pay. Your credit score is derived from information found in a credit report.
Your credit report is all of your financial history for the last seven years. The exceptions to the seven year rule includes some good credit information (like closing an account that was in good standing) and Chapter 7 bankruptcy information – both of which stay on your history for ten years.
Your three digit credit score is calculated based on a formula developed by credit report companies. They go over information connected to your credit history to determine your score. California established a law in 2000 that allows anyone applying for credit to have access to their credit score. Now federal law permits you access to information that the credit card companies used to keep secret, like how your credit score is determined.
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.
– When trying to get a loan, shop around for one during a period of thirty days so that all requests made to check your credit score are considered to be one total request.
– 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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