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Your Credit Score: What it Means to You


credit-score-guidanceThere is a lot of talk lately about credit scores. What are credit scores? Where can I find mine? Why is my credit score important and how is it relevant to me? These may be some of the questions you have when it comes to your credit scores.

Your credit score is basically an account of how you handle your money. It displays your loan history, credit card history, what your outstanding debts are and if you have any available credit. It is a good indicator of how well you handle your finances; were you were late on payments? Are you living beyond your means? This is especially interesting to lenders, banks, credit card issuers, auto financers, proprietors, and even potential employers. A good credit score rating leads to better interest rates with credit cards, insurance rates, and lower mortgage rates to name a few benefits.

The credit score is based on an equation adapted from the Fair Isaac Corporation (FICO) and this equation is what most credit agencies rely on. Your credit score can range between 300 to 850; the higher the score, the better. This is how your score is broken down:

  • Thirty-five percent of the score is based on your payment history.
  • Thirty percent of the score is the outstanding debt, which would be mortgages, car payments, and credit card debt.
  • Fifteen percent of this score is the length of time you have had credit.
  • Ten percent of the score is based on any new credit. A note here, while it is encouraged to check up on your credit score once a year, the more inquiries you make in a year, the lower your score will be.
  • Ten percent of the score is based on the types of credit you currently have.

You also may be interested to know that late payments, defaults, forbearances and repossessions can all remain on your credit score report for up to seven years after the fact. Bankruptcies can remain for up to ten years. It is legally impossible to alter your credit score so it is imperative to maintain a healthy credit score by making your payments in a timely fashion and not borrowing above what you are able to handle.

If you would like additional information regarding your credit score report, how to obtain your credit score and tips on how to maintain a strong credit score and manage your debt/s, there are three reputable websites that you can access this information.

Report Order: 1.800.685.1111
Fraud Hotline: 1.888.766.0008

Report Order: 1.888.397.3742
Fraud Hotline: 1.888.397.3742

Trans Union
Report Order: 1.877.322.8228
Fraud Hotline: 1.800.680.7289

By Michelle Robbins
Default Prevention and Compliance Specialist at American Public University