Credit Scores, Credit Score Calculation, and Access to Your Credit Report
Credit health is indicated by one important number, your credit score. Each reporting agency has their own credit score for you. Your credit score is a numerical representation of your credit health. There are various different types of credit scoring models. However, the FICO model, that ranges from 300-850, is the most common. The higher your score’s number is, the better your standing is with the credit agencies. Your FICO score takes into account a variety of factors.
The first factor that makes up your FICO score is your payment history. Payment history makes up 35% of your FICO score. Payment history is made up of exactly what the name implies, it is your ability to make payments on-time. Each late payment, delinquency, or collection account takes away from your payment history score. The second factor that affects your score is the amount owed which accounts for 30% of your score. This part of your score takes into account the total amount you owe on all credit accounts, in addition to your credit utilization ratio which is the percentage of available credit you are using on each of your credit cards. The lower the amount of money you are borrowing against your credit cards, the higher it will raise this score category. Length of credit history is also taken into account at 15% of your credit score. This piece of your credit score is affected by how long you have had all of your accounts including how long you have been using credit. Typically, having older accounts is better. Also, closing your oldest accounts can have a negative effect on your credit score. Credit mix or the variety of accounts you have such as credit cards, car loans, student loans, a mortgage, and more, can also affect your credit score. Credit mix makes up 10% of your score and it does not tend to have much affect on your score unless you do not have much credit usage history. The last factor that affects your credit score is new credit at 10%. When you apply for new credit, there can be what is called a hard inquiry on your credit. This type of inquiry shows up on your credit report. If you have too many hard inquiries in a short period of time, it can be a potential red flag to lenders and adversely affect your credit score. Thankfully, there are ways to track your credit score.
There are a few ways that you can check up on your credit score to see how you are doing for free. The first way is the check with your bank. Certain banks allow you to access your credit score at any time using your online banking portal. If that option is not available to you, you can also receive your credit report for free monthly from one of the credit reporting agencies we spoke about earlier, Experian. You can click here for your free monthly Experian credit report. Another option available to you is to request a free credit report annually from all 3 credit reporting agencies here.
Stay tuned for part 4 of our credit series where we address why credit is important and how to build credit. If you have any questions about how your credit situation can affect your purchasing power, give us a call at 916-300-1450.
We hope you have a great day and stay safe.
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