Know your score!
Wednesday, November 3, 2010
What is your credit score? Do you know what your score means? How did you get that score? How do you improve your score? It is time to have the answers to these important questions. It is time for us to start the dialogue about our credit scores in order to become more informed and in control of our personal credit.
Your credit score is a 3-digit number from 300 to 850. You want your score to be as high as possible. This single number is a powerful piece of who you are in the consumer world. It determines whether or not you can buy a house or a car or qualify for any other type of loan. It also determines how much you will have to pay if you do qualify for a loan or purchase an insurance plan. Those with higher credit scores get lower interest rates. And, yes, those with lower credit scores get higher interest rates.
Here is a general summary of your score and what it means for you.
| 700 and higher is excellent | Good for you. Keep it up. Ask for best rates and discounts. |
| 680 to 699 is good | Nice. You will get normal loan rates. |
| 620 to 679 is okay | Fair. You will be given tougher rates. Try to increase your score. |
| 580 to 619 is low | Ouch. Expensive loans for you. You need to improve your score. |
| 500 to 579 is bad | Uh oh! You will be given the worst rates. You need to repair your credit. |
| 499 and lower is terrible | Trouble. You are going to need help in order to repair your credit. |
Your credit score is calculated from the information on your credit report. Your credit report is kept up to date by three nation-wide credit reporting companies: Equifax, Experian and TransUnion. The good news is your credit score can change. Every time your credit report is changed so is your score. Here is a general summary of what your score is based on and what you can do to improve it.
| Payment history | 35% of your score | Pay your bills on time. It’s that simple. |
| Amounts owed | 30% of your score | Keep your debt lower than the allowed limit. Try to have credit card balances lower that 75% of their limit. |
| Length of credit history | 15% of your score | A longer history gives more information about you. Keep old credit accounts open even if you are not using them. |
| New credit | 10% of your score | Recent activity will lower your score far a short time. Applying for credit results in an inquiry on your report. Do not allow anyone to inquire on your report unless you have to. |
| Types of credit used | 10 % of your score | It is better if you have had different types of credit. Do not create debt for this reason, however. |
Once you figure out what your score is and what it means and how you got it then you can do your best to improve it. Just like when you were back in school! Except this time you can’t just do better with the next teacher. No excuses. Get your credit under control.
- Build a better credit report
- Build healthier consumer habits
- Develop a better understanding of personal credit
- Increase your credit limits
- Become prequalified for future loans
- Help repair the economic crisis
