Credit Score Basics
Your credit score gets checked whenever you try to apply for a credit card, apply for a loan, or make any kind of credited purchase. Your credit score is basically a number that represents how trustworthy the business world believes you to be as far as making your payments is concerned, a higher number indicating more confidence in your ability to pay. Your credit score is derived from information found in a credit report.
All the financial activity you have engaged in over the past seven years is recorded in your credit report. If you have filed for Chapter 7 bankruptcy or closed an account that had been in good standing, this will continue to appear in your credit report for ten years.
Your three digit credit score is calculated based on a formula developed by credit report companies. They go over information connected to your credit history to determine your score. California established a law in 2000 that allows anyone applying for credit to have access to their credit score. Now federal law permits you access to information that the credit card companies used to keep secret, like how your credit score is determined.
The breakdown of your credit score is fairly easy. The number ranges from 300 to 900 with approximately 35% of that number being based on payment history, 30% on outstanding debt, 15% on the length of time you have had credit (the longer the better), 10% on the number of inquires on your report, and 10% on the types of credit that you currently have. The companies then compare this to credit performances of other consumers with similar histories and profiles to reach your magic credit score.
Some tips to help your credit score:
– Keep your rotating credit to 25% of your limit.
– Don’t be late paying. Making payments earlier than necessary does not incur any penalty.
– When trying to get a loan, shop around for one during a period of thirty days so that all requests made to check your credit score are considered to be one total request.
– Check your credit history at least three times a year. You can access a free credit report through annualcreditreport.com. This helps you keep an eye on the activity and ensure that anything out of the ordinary is dealt with before it becomes a problem.
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