Your Credit Score

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Your Credit Score: What a Credit Score is and How to Effectively Manage Your Own

Whether you want to buy that special gift with a credit card or purchase your first home by taking out a mortgage, your credit score will make all the difference. A credit score is a number ranging from 300-850 summarizing your credit history. It allows creditors to decide if you are a good credit risk (in other words, will you pay what you owe on time). This analysis will drive the terms of the credit extended to you. Most importantly, your credit score will determine the interest rate charged to you. Since the three major credit reporting agencies (Equifax, Experian, TransUnion) use different credit models and may have different information on your credit history, a person can have several different credit scores at any one time.

There are five factors that affect a credit score, each with an approximate weighted contribution:

  1. Payment history (on-time and late payments, payment amounts) – 35%
  2. Debt level (amount owed, percentage of available credit used) – 30%
  3. Length of credit history – 15%
  4. Types of credit used (credit cards, car note, student loans, mortgage, etc.) – 10%
  5. Number of new credit inquiries (for example, credit cards, store cards) – 10%

The statistical models used for generating credit scores are subject to federal regulation and cannot consider certain prohibited biases such as race, religion, and sex. Furthermore, if negative action results from a credit score, the lender must provide the borrower the specific reasons for the denial of credit.

By law, each legal U.S. resident is entitled to one free copy of his or her credit report from each credit reporting agency once every twelve months. This information is available at, the government-mandated website run by the three major credit reporting agencies, or by calling 1-800-322-9228. Review your report thoroughly and checks for errors or omissions. Dispute any mistakes you find by contacting the appropriate agency.

It is important to remember that credit scores are not the sole factor used by lenders when evaluating whether to extend credit to a customer. Other factors such as current income and employment history may also play a part in this decision.

Here are some keys to managing your credit score:

  1. Pay your debts on time
  2. Keep overall debt levels low
  3. Regularly monitor your credit score
  4. Limit the number of new credit inquiries (don’t take every offer)
  5. Don’t close accounts unnecessarily. Your credit score positively factors in the length of time an account has been open.
  6. Demonstrate that you can manage several types of credit (for example, credit card, car loan, mortgage)

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