Years ago your credit score was a big secret, known only to a select few such as your mortgage and credit card companies. In 2000, Fair, Isaac Co.,
major supplier of credit scoring software, announced they would begin sharing credit scores, also known as FICO scores, with consumers.What is a credit score? A credit score is a tool used by credit grantors to determine your ability to repay your debts. The information in your credit report is compared and evaluated against tens of millions of other consumer credit reports which gives you a credit score or number ranging from 350 (highest credit risk) up to 800 (lowest credit risk). A higher score means you are less likely to make late payments or default on credit extended to you. Your credit score will change as information in your credit report changes over time.
Following is a short overview of five major categories of credit information that are used in determining your credit score and guidelines for scoring higher.
PAYMENT HISTORY (35 percent)
Paying your current bills on time is single most important factor in obtaining a high credit score. This category includes credit cards like Visa and MasterCard, retail accounts, installment loans such as those for a car or education, loans from finance companies, and home mortgages. Also included in this category are matters of public record such as bankruptcies, liens, wage garnishments, and collection accounts. The key to a higher score: Pay your bills on time!
HOW MUCH DEBT YOU CARRY (30 percent)
This category considers amount of debt you owe on your various credit accounts. If you’ve “maxed out” your available credit, this could indicate that you are overextended financially and won’t be able to make your payments on time or repay your debts completely. This category also examines how many of your accounts carry balances and how much money you’ve already repaid. Closing accounts with a zero balance does not generally improve your score in this area. The key to a higher score: Keep your credit card balances low.
