Manage Your Credit Health By Understanding Your Credit Score
You may know your credit history when you look at your credit report, but do you know your credit score? Yes, you have a credit score and this three-digit numbers may get in the way between you and your important purchases. Your credit report may show important information but understanding your credit score is a vital part of your credit health.
Why do you need to know your credit score if you check your credit report on a regular basis? Most mortgage lenders and large financial lending institutions will want to know your credit risk level when applying for credit. Their assessment and approval process for credit application is based on your credit score. The most commonly used credit scores is FICO scores. Other companies have their own version of a credit score, but FICO scores remain to be the most-used score and most people refer to their credit scores as FICO score. Other version of credit score may be used by lenders to examine your credit standing, but you need to get your FICO score if you want lenders to see you.
Your credit score, which is a three-digit number, is used to help lenders decide. Your score can go as high as 850 and the lowest is 300. Passable credit score should be at least 720 or above. If you have a credit score of 720, you do not really need to trouble yourself of improving the score as lenders put you in the same category of people with credit score of 800-820. Also, lenders find it risk-free and normally get loan approval without problem and at a low interest rate. However, if your number is below 700, you need to work in improving your score. Knowing your FICO score will help you see your credit health.
How do they come up with your FICO score? Let’s begin with payment track record, which takes 35 percent of the scoring criteria. Your payment history should indicate on time payments and no late payments on any accounts that you have because this is the most important information lenders look for.
30 percent is based on the amount you owe to the total amount of the credit available. If you are closer to maxing out all your credit, it would leave a negative impression to lenders and this can lower your credit score.
15 percent of the scoring process are based on the length of credit history. Accounts existing for a long time will help your credit score.
10 percent of the scoring criteria are based on new credit. Opening several new credit accounts in a short span of time can drag your credit score down.
10 percent is based on the types of credit you use. Taking more debt is sure to make lenders queasy.
Now that you know how your credit score is determined, your next move is getting your FICO score now and learn how to improve it. You can obtain your FICO score through Fair Isaac’s myFICO service. Also, you get your credit report when you order for your FICO score by myFICO service, and tips on increasing your score. Understanding your credit score can help you manage of your credit standing.
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