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Know the score about credit

admin • Sep 30, 2013

Credit bureau scores are often called “FICO Scores” because most credit bureau scores used in the U.S. are produced from software development by Fair Isaac and Company (FICO). FICO scores are provided to lenders by major three major credit reporting agencies; Equifax, Experian and Trans Union.

The credit score number based on an analysis of information contained in a credit report, which provides an indication of how likely a person, is to repay his or her debts. The number can range from 300 to 900. FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk.

Here’s how your credit score is determined:

  • Your payment history determines 35 percent of the score. How many bills have been paid late, how many were sent for out for collection, Bankruptcies- these are the kind of things that impact your score. The more recent, the worst the impact.
  • Outstanding debt determines 30 percent of the score. How much you owe on car loans, home loans, etc., how many credit cards you have and how many of them are at their limit. The more cards you have their limit, the lower your score will be.
  • The length of time you’ve had a credit is a factor for 15percent of your score. The longer you have had established credit, the better it is for your score.
  • If you have applied for a lot of loans or credit cards, you will have a lot inquires on your report. These are bad for your score because it may indicate you are in some kind of financial trouble. The most recent the inquiry, the worse it is for your score. This determines 10 percent of your score.
  • Another 10 percent of the score is based on the types of credit you have. The number of loans and the available credit from the credit cards makes a difference.

Looking at this breakdown, the length of time you have had credit is one of the most important parts of your credit score. Your credit cards are what push you into the 700 to 800 point range. The longer you have them in good standing, the higher your score increases. When you close a credit card this will have the opposite effect, this will drop your credit score drastically, because you closed out all history you have built on this card.

Remember a credit card should just be a tool to improve your score. Just small purchases and pay off the card every month.

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