Understanding Your Credit Score

Many individuals ask Bills.com for help in understanding your credit score. First of all, it's important to obtain copies of your credit report from the three major credit bureaus and review them for accuracy. But if you want to know how a potential lender views you, the most important step in understanding your credit score is to know what a credit score (or FICO score) is and how it is determined. A FICO credit score comes from the Fair Isaac Company, which came up with the process of condensing all of your credit information into one three-digit number. Three quarters of all lenders use the FICO credit score when considering requests for loans or credit which is why this is an integral part of understanding your credit score.

The importance of understanding your credit score doesn't end there. It's also used in determining your interest rate, the amount of your down payment and the variety of mortgage types available to you if you're buying a house, your ability to get a car loan, the premium on your auto or homeowners insurance, and even your ability to get a job. If your FICO credit score is on the low side, you'll pay a higher interest rate on loans and credit cards. To get the best interest rates, your credit score should be 720 or above.

Understanding your credit score - what is the range of possible FICO credit scores and what do they mean?

FICO credit scores range between 300 and 850. Ratings are as follows:

~ Excellent: Over 750
~ Very Good: 720 or more
~ Acceptable: 660 to 720
~ Uncertain: 620 to 660
~ Risky: less than 620

Understanding your credit score - how is my FICO score calculated?

The formula used to calculate your FICO credit score includes information based on several factors:

~ 35% on your payment history
~ 30% on the amount you currently owe lenders
~ 15% on the length of your credit history
~ 10% on the number of new credit accounts you've opened or applied for (fewer is better)
~ 10% on the mix of credit accounts you have (mortgages, credit cards, installment loans, etc.)

Understanding my credit score - how can I improve my credit score?

The best way to improve your credit score is to pay your bills on time and manage your credit wisely. The most important item is your mortgage. Make sure you pay it on time every month in order to maintain a good credit score. Installment loans, where you borrow a set amount to buy new furniture or appliances, for example, are given more weight than credit cards.

Keep your borrowing well below your credit limits, because your FICO credit score will be lower if you are maxed out on your credit cards. Don't have more than two or three credit cards because a large number of credit cards also lowers your FICO score. Don't apply for several credit cards at one time; it makes lenders nervous and will lower your FICO score. Other factors also affect your score, such as home ownership, which raises it, and moving frequently, which lowers it.

Understanding your credit score - how can I find out what my FICO score is?

Find out what your FICO score is: Get Credit Report.

Bills.com Site Map > Credit Index Pages > Credit Articles