Consumer Loans

Understanding Your Credit Score

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Whenever you're trying to get credit, your credit score is a key deciding factor. Need a car loan? Your dealer or bank will check your credit score. Buying a house? Your interest rate will be affected by your credit score.

Your credit score tells lenders whether or not you’re good about repaying your debts. If you pay on time and don’t carry a lot of debt, then you’re a good credit risk, and you’ll get loans, credit cards, mortgages and great interest rates. If you don't pay on time and max out your existing cards, you either won’t be eligible for additional loans or you’ll end up with higher interest rates.

What is a Credit Score?

Your credit score is a number that helps lenders determine how likely you are to make your payments on time. It is a summary of your credit risk, based on information from sources who have issued you credit (banks, credit card companies, department stores, etc..)

You have three credit scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well.

How to Improve Your Score

Check your credit report - Improving your credit score begins with your credit report. Request a copy of your credit report and check it for errors. Under the Fair Credit Reporting Act you are entitled to request a free report from each of the three credit reporting agencies every 12 months. Your credit report contains the data used to calculate your score and it may contain errors. In particular, check to make sure that there are no late payments incorrectly listed for any of your accounts and that the amounts owed for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit bureau and reporting agency.

Pay your bills on time - Your payment history accounts for about 35 percent of your score. On-time payments mean a higher score. Late payments, delinquent or overlimit accounts, bankruptcies, and liens will significantly lower your score.

Increase the length of your credit history - This accounts for about 15 percent of your score. The length of your credit history shows how long you have been using credit and how you have managed your finances in the past. The longer your credit history, the better, so avoid closing accounts which have been opened longer, even if you don’t use them.

Keep your credit card balances low - Keep the amount you borrow below 25 percent of your available credit limit. This accounts for about 30 percent of your credit score.

Minimize the frequency of new card requests - This accounts for 10 percent of your score. Applying for a lot of credit in a short period of time can lower your score.

Diversify your credit - This makes up the remaining 10 percent of your score. Keep a combination of different types of installment debt (such as car loans and mortgages) and revolving debt (like credit cards). Having credit cards is a great credit builder, but lenders want to see that you can manage other types of credit as well, such as installment loans and mortgages.

Excellent

Your credit score is higher than 800. Lenders view you as an excellent borrower. Your credit report shows a long history of paying off your credit accounts on time and in a timely fashion. You have no negative public records such as bankruptcy filings or collection accounts on your report. Your excellent score qualifies you for the best deals and interest rates available.

Very Good

Your credit score is between 750 and 800. Lenders view you as a very low credit risk. Your credit report shows that your credit accounts are paid on time each month and that you use your credit accounts responsibly. Your score qualifies you for many of the lowest rates.

Good

Your credit score is between 700 and 750. Lenders view you as a low credit risk. Your credit report shows that your credit accounts are currently paid on time but you may have had late payments in the past. You also do not have an excessive amount of debt. Your score qualifies you for competitive interest rates.

Fair

Your credit score is between 650 and 700. Lenders view you as a moderate credit risk. Your credit report may show that have higher than average credit card debt balances and you may have older public records showing past collections or bankruptcy. Your report may also show excessive applications for new credit. Your score qualifies you for decent interest rates but not the best available.

Bad

Your credit score is between 600 and 650. Lenders view you as a high credit risk. Your credit report may show that have high amounts of credit card debt and you may have late payments, collections or bankruptcy in the public records. Your score makes it difficult for you to be approved for standard credit products.

Very Bad

Your credit score is below 600. Lenders view you as a very high credit risk. Your credit report may show that have high amounts of credit card debt and you may have late payments, collections or bankruptcy in the public records with excessive applications for new credit. Your score makes it difficult for you to be approved for new credit without a co-signer and/or down payment.