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The Basics Of Your Credit Score
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.
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.
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.
Some tips to help your credit score:
Keep your rotating credit to 25% of your limit.
ALWAYS pay on time - paying early is even better, although it doesn't affect your credit score.
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.
Check your credit history at least three times a year. You can access a free credit report through www.annualcreditreport.com. This helps you keep an eye on the activity and ensure that anything out of the ordinary is dealt with before it becomes a problem.
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