Credit Score Facts You May Not Know

Understanding Credit Scores PDF

People often perceive their credit score as merely a three-digit figure, albeit an important one. However, it is essential to recognize that this number reflects a comprehensive evaluation of various underlying factors. Understanding the lesser-known aspects that contribute to your score can be particularly valuable if you aim to improve it.

What makes up a person’s credit score?
Your credit score is derived from your payment history, the amount that you owe on your credit lines (like credit cards), the length of your credit history, the amount of new credit you have opened, and finally the type or mix of credit you have. There can also be negative entries, such as judgments for unpaid bills, which may affect your credit score.

Are there other items that can negatively impact your credit score?
Lots of inquiries at one time can lower your score temporarily. It can also be impacted if you have any public records such as tax liens, collection agency items, or even civil judgements. Also, if you close credit that you have paid off, losing that history can influence your score negatively. It is important to apply slowly for debt and show that you can handle new debt before looking to add more.

What are ways to build your credit?
To boost your credit score, ask for rent or utility payments to be reported—many apartments offer this for a fee. Increase your credit card limit without raising the balance to help lower your credit utilization ratio. If you have no credit, become an authorized user on a credit card or open a secured card to build a positive credit history.

What is considered a good score and what are the benefits of having a good score?
Credit scores are much like bowling, the higher the score the better. For a FICO score, your first goal is to be above 700. If you can get to 750 you are starting to get to preferred borrower status and once you go over 800 you are considered a top borrower. A higher credit score lets you borrow more and get a lower interest rate, which means lower payments. Some insurance companies also use credit scores to set rates, so good credit can reduce your insurance costs. Most institutions provide a credit score if you have an account with them, and if not, several free apps are available that offer access to your FICO score for ongoing management.