What is a credit score, and how is it determined?


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By Roslyn Lash

Credit-cardsA credit score provides a summary of your credit history. The higher the score, the more credit worthy you appear, and the more likely you are to obtain the type of financing that you seek. Studies have shown that the more credit worthy a person is, the less likely their home will go into foreclosure, therefore this score is of great importance to the prospective homeowner. The score typically range from 300 to 850. A relatively good credit score is 685 +. It is unknown exactly how the credit score is determined, however, there are many factors that influence your score:

  • Payment History (35%). Your score is greatly impacted by your payment history. Past credit history gives an indication of future performance. Minimize your “30-day late payments”, these reflect negatively on your credit report.
  • Debt (30%). If your credit cards at the maximum, it gives the appearance that you have having difficulties paying your bills. Your card balance should not be more than 30% of the total credit limit. For example, if your credit limit is $3500. Your balance should not exceed ($3500 x .30) $1050.
  • How long you’ve had credit (15%). The longer that you have had credit, the more reliable credit risk you appear.
  • Inquires (10%). It is important to know that when you are shopping for interest rates for any big-ticket item such as a home, or a car, that you not divulge your social security number. Casual inquires reflect negatively on your credit report. It makes your appear desperate.
  • Types of credit (10%). Revolving charge cards are not view as heavily as loans from finance companies. Finance companies usually charge hefty interest rates!

If you want to improve your credit score, you should:

  • Pay your bills before the due date. If unable to do so, contact your creditor immediately to make payment arrangements.
  • Avoid casually applying for cards.
  • Keep at least one card that has been open and active for many years.

To receive your free annual credit report, visit www.AnnualCreditReport.com  For more credit, debt, and budgeting tips visit www.Twitter.com/RosLash

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