What Is My Credit Score?
Your credit report is a numerical representation of your financial history. It is a depiction of the credit risk that you pose to lenders, credit-card issuers, and other companies or individuals.
Mortgage lenders use credit scores as part of their decision-making process - applicants with stronger credit scores are more likely to better terms and more competitive rates on their loans.
What Affects My Credit Score?
Credit scores are made up of several different factors:
Payment history, which is 35 percent of your score. Your previous payment
history is considered the most important indicator as to whether you will be a
good future credit risk.
- Amounts you owe, which comprise 30 percent of your score. Try to keep these amounts as low as possible, since this indicates that you can handle credit responsibly.
- Length of credit history, which is 15 percent of your score. Lenders see longer credit histories as a sign that you have learned how to handle credit over time.
- New credit, which makes up 10 percent of your score. Don’t open too many new accounts at once – this can worsen your score.
- Other factors make up the other 10 percent. These include demographics such as types of credit used and your marital status.
What is Considered a Good Credit Score?
Credit scores usually range between 300 and 850, with 300 considered lowest and 850 considered best. However, any score above 700 is seen as good – and of course, the closer to 850 the better. Average scores range between 620 to 700, with scores of less than 620 considered to be poor.
Video: What's a good credit score?
Better credit scores will result in more favorable mortgage rates. Borrowers in the top tier ranging from 760 to 850 will be offered more loan choices and better interest rates; while those with a score of 620 or lower are considered subprime. Subprime borrowers will be offered higher rates and fewer choices of loans. To qualify for a mortgage loan, you need a minimum score of 500 to 520.
How Do I Improve My Credit Score?
Improving your score takes time, persistence, patience and a commitment to establishing better financial habits. Here are a few tips:
Avoid late or missed payments.- Don’t transfer debt – pay it down.
- Shop for new credit or loans within a short period of time – potential lenders generate inquiries, which affects your score.
- If you add an authorized user to an account, make sure that user is a good credit risk.
- Avoid store cards and small debts, which can be considered risky by credit bureaus.
- Notify credit bureaus of any name changes.
Video: Raise Your Credit Score
How Do I Find My Credit Score?
Under the
Fair Credit Reporting Act (FCRA), the three nationwide credit bureaus –
Equifax, Experian, and TransUnion – are required to provide consumers with a
free copy of their credit reports every 12 months.
In compliance with the FCRA, the three bureaus have created a central website through which you can order your annual credit report. That site, www.annualcreditreport.com, lets consumers order all three reports at the same time, or order each report individually over time. To get your credit report, you must provide your name, address, Social Security number, and date of birth, as well as a previous address if you have moved within the past two years.