All About Credit Scores
by Credit.com
Anyone who has ever applied for a credit card, loan, or cell phone has dealt
with their credit score. This illusive three-digit number impacts the rates
and terms you’ll receive on everything from a mortgage to car insurance.
Understanding and managing your credit scores can help you save thousands
of dollars on life’s big purchases. Here’s what you need to know
about credit scores:
The basics
A credit score is a numerical evaluation of your credit
history used by businesses to quickly find out if you pose a risk to the company
as a borrower.. Credit scores are calculated using complex mathematical formulas
that look at your most current payment history, debts, credit history, inquiries,
and other elements of your credit report. You have three credit scores, one
each based upon your credit reports from Equifax, Experian, and TransUnion.
You can view a sample TransUnion credit score online by clicking here.
The numbers
Credit scores usually range from 300-850, with 680 or
higher considered to be “good.”
Good credit scores help you get the best deals and lowest rates on major purchases.
Your credit score may fluctuate each time something changes on your credit
report.
The models
There are thousands of slightly different credit scoring
formulas (including FICO, Beacon and Empirca scores) used by bankers, lenders,
creditors, insurers, and retailers. Each score can vary somewhat in how it
evaluates your credit data. It’s normal for your credit score to go
up or down about 40 points depending on which scoring model and credit report
data is used.
The system
Your credit score improves if you:
- Pay your bills on time
- Have at least 3-6 open and active credit accounts
- Have 1-2 loans
- Keep your credit card balances low
- Have a stable record of credit use
- Keep your accounts open for a long time
- Avoid too many applications for new credit
Alternately, your credit score will decrease if you: pay your bills late,
have too many or not enough accounts, max out your credit cards, haven’t
had credit very long or apply for too many new accounts.
The myth
Checking your own credit data does not cause your credit
score to decrease, contrary to popular rumor. You can check your credit reports
as often as you would like without harming your score. Only when you apply
for new credit or loans does a “hard inquiry” cause about a 5
point drop in your score.
Now that you know all about credit scores, it’s time to see where you
stand. Check your
credit reports and scores online today. You can also read more about
credit scores and how to keep your credit healthy in our learning center.
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