Keeping Score on Your Credit Score
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It's time to settle the score on your credit score. The following information is your top-line report for what you need to know about your credit score, why it's important for your financial health, and how to request one from a reputable credit reporting agency like Equifax.
A credit score is a rating used by a lender to help determine whether or not you qualify for a particular credit card, loan, or service. The credit reporting companies apply an in-depth mathematical model (called an "algorithm") to the information in your credit file to yield your credit score. Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent to the lender. Put simply, the higher the score, the better.
Score Points (Or Not): Top 7 Factors that Affect Your Credit Score
Many different mathematical formulas are used to calculate credit scores and most are based on the following factors, although each scoring model may weight these factors differently:
- Payment history. This, along with public records (see below), generally accounts for approximately 35% of your score. A record of late payments on your current and past credit accounts will typically lower your score. Being consistent about paying on time can, over time, have a positive impact on your score.
- Public records. Matters of public record such as bankruptcies, judgments, and collection items may lower your score. Be aware of these, even if you can't always avoid them.
- Length of credit history. In general, a longer credit history is better and can sometimes have a positive impact on your score. Credit history typically accounts for around 15% of your score.
- New accounts. Opening multiple new accounts in a short period of time may negatively impact your score.
- Inquiries. Whenever someone else gets your credit report -- a lender, landlord, or insurer, for example -- an inquiry is recorded on your credit report. A large number of recent inquiries may negatively impact your score. Your new credit accounts and inquiries generally make up about 10% of your score.
- Accounts in use. The presence of too many open accounts can have a negative impact on your score, whether you're using the accounts or not. This activity usually makes up approximately 10% of your score.
There's no such thing as a quick fix.
It's a common misconception that credit scores can be quickly increased. Credit scores are based on your credit history and can generally only be changed over time. "Credit repair clinics" often claim they can remove negative information from your credit report for you, but beware - these claims can sometimes be false and may even be illegal. Remember - accurately and timely negative information cannot be removed from your credit file.
Score big with ongoing scoring information
In the late 1980s Fair Isaac Corporation (Fair Isaac) developed a general-purpose mathematical model to predict the risk that consumers represent to lenders based on information in their credit file. The result is the FICO® score, which ranges from 300-850.
Equifax and Fair Isaac embarked on a joint project to give consumers a product to monitor your FICO credit score: Score Watch™ . Score Watch checks to see if your score has been changed each time there is a key change to your credit report, or weekly if there are no key changes. Both of these solutions provide you with updated scores, explanations of what the scores mean and, bottom line, how lenders view you.
What's your score? Find out:
- Order online now
- Or, call 1-877-SCORE-11
- Or, write to:
Equifax Information Services LLC
P O Box 105167
Atlanta, GA 30374
One last thing to keep an eye out for...Vantage Score
There's a relatively new credit scoring system in town (as of March 2006) and it's designed to provide be predictive and consistent across all three nationwide credit reporting agencies. It's called Vantage ScoreSM.
Vantage Score was introduced because the credit industry was looking for a new approach to credit scoring across all three credit bureaus (Equifax, Transunion, and Experian). Vantage Scores range from 501-990.
Final Score? You Win
It's your money. Empower yourself to know all there is to know about your credit report and credit score. Even share with your children fun ideas for being smart with money. (Hey, we're never too young to start thinking about the future!) With your credit score at hand, the final score is personal knowledge and that always comes up as a win.