Guide to Credit Scores - Helping Hands Credit Consulting

Guide to Credit Scores

A Credit score (or FICO score) is tool used by lenders to predict how likely you are to make your credit payments on time. Your credit score determines whether you can rent an apartment or qualify for credit cards, car loans, and mortgages. People with higher credit scores are much more likely to be approved and qualify for lower interest rates than those with bad credit.

How are Credit Scores Calculated?

Your credit scores is calculated based on information found in your credit report. By examining how the FICO system calculates your credit score, you can learn techniques that will help you maintain a high credit score or increase a poor credit score.

Your credit score (or FICO score) is calculated based on the information found in your credit report.

The FICO system uses five major factors to calculate your credit score:

35% percent of your credit score is based on your payment history. Late payments reported to the credit bureaus can lower your score dramatically.
30% of your score is a comparison of your total debt to your total available credit. The ratio of revolving debt, like Credit Card balances, is compared to your credit limits.
15% of your credit score is based on the length of your Credit History.
10% is based on the kinds of credit you use. Some kinds are weighted more heavily.
10% of your FICO score is determined by how much credit you have used recently.

Debts such as court judgments or tax liens also have a negative effect on your credit score. Having too many recent credit checks (also called inquiries) on your credit report can also lower your score.

The highest FICO score you can receive is 850. What is a good credit score? A credit score between 720 and 850 is the optimal range, with scores over 750 considered excellent credit. FICO scores from ranging 720 to 749 are considered to be good credit scores. If your score falls below 660 you may have trouble getting prime interest rates on loans and credit cards, and if falls below 620, it will be very difficult to get credit at all.

There are three major nationwide credit reporting bureaus and each calculates your credit score differently. To get an accurate picture of your credit you must request a credit report and score from each bureau.

U.S. residents may request a free copy of their report (without score) from each Credit bureau once a year. You can do this online by visiting:

http://www.annualcreditreport.com/

Or you can buy your credit report with credit score at: http://www.experian.com/, http://www.transunion.com/, or http://www.equifax.com/