Earlier this week, I shared 10 smart money moves to improve your finances in 2012. One of those smart money moves is to get your free credit score.
What is a Credit Score?
Anyone who has ever borrowed money has a credit score which informs lenders of your credit-worthiness. Your credit score is a three-digit number that is calculated by a mathematical algorithm that uses information in your credit report, and is used to predict the likelihood, or risk, that you would become delinquent or default on your credit obligations.
Another word for credit score is FICO score, or FICO credit score. FICO is named after Fair Isaac Corporation, which developed the software used to calculate the credit scores. According to Fair Isac Corporation, 90 percent of all financial institutions in the U.S. use FICO scores in their loan decision-making process.
How is My Credit Score Calculated?
- 35% is based on your payment history (how many payments have been delinquent)
- 30% is based on amounts owed (total amount owed for each account)
- 15% is based on length of credit history (time since account opened, and how often it is used)
- 10% is based on new credit (the number of new accounts opened and the number of new credit inquiries or loan applications)
- 10% is based on types of credit used (number of installment loans, credit cards, mortgage, etc.)
What Does my Credit Score Mean?
Credit scores range from about 350-850 points. The majority of scores are in the 600-700 range. The higher the score, the better your credit-worthiness.
Scores of 700 and above are considered “prime” and can get you easier credit approvals and much better interest rates on loans. Having a score below 700 means you will probably have to pay a higher interest rate to get the credit you seek.
Click here to learn how to get your free credit score.
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