Let's talk credit scores. Why? Because it is a major factor in your approval and interest rates for loans and other types credit, being offered employment, rates on car insurance and so much more.
I hope you have received and reviewed one or all of your free credit reports. If not, I encourage you to do so. You can find details on how to get your reports on my last blog post, click here
What is a Credit Score?
It is a three-digit number that represents how you have paid back money you have borrowed or how you used credit that have been extended to you. It summarizes your full report into three digits using a percentage scale. You can obtain your credit scores from TransUnion, Equifax, and Experian. It is important to get your scores from each of these national credit bureaus. The reason why you need it from each as the scores may be different on each as they have different information about your credit history.
The FICO Credit Score:
• Created by Fair Isaac Corporation
• Used by most top lenders
• Ranges from 300 - 850.
• The lowest number represents a bad score and the highest number is a good score.
• A good credit score is 720 or above
It is important to note, there are other types of credit scores, such as Vantage (2.0 and 3.) and Plus, and they use a number range and/or a letter grade as the measurement.
Below are the factors that affect your score:
1. Payment history - 35%
This has the largest impact to your score; The secret to this one is simple - pay your bills on time!
2. Amount of debt or amount owed - 30%
This is the next largest impact to your score. Try not to have more credit card debt then you can afford. Work each month to pay the balance(s) in full. A good rule of thumb is to not owe more than 30% of your credit limit. If you have a credit card with a $500 credit limit, try not to carry more than $150 if any balance if any at all.
3. Length of Credit History - 15%
How long you have had each line of credit is taken into consideration.
4. New Credit - 10%
Opening up too many accounts around the same time is not a great thing. Try to refrain from opening cards just because you get a % off the purchase the day.
5. Types of Credit or Credit Mix - 10%
It is good to have different types of credit, such as credit cards, mortgage, and car loan. It is not required but if you have a good mix and paying them all time or paying the full balance then that is favorable to your credit score.
Here are a few apps where you can get your credit scores. When accessing your credit score from these apps be sure to know which the of score method they use.
2. Credit Karma
3. Creditwise by Capital one
4. Credit Sesame
Stay tuned for our next blog post on this topic, which will show you different scenarios of how good and bad credit score can impact you!
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