Credit Scores 101

Do you know what your credit score is? If not, you could be putting yourself at risk. Do not apply for a mortgage or even a credit card until you know what type of score you have. Many of today's consumers simply do not realize the power and the importance this one, little number has when it comes to managing your financial future. The good news is that the information is all right here for you.

Credit Scores Matters

Your credit score can make the difference between securing a home loan or being turned down, getting your dream job or getting passed over. The truth is, everyone from credit companies and lenders to potential employers and businesses uses your credit score information – and a low credit score can impact your financial well being for years. To help you better understand and manage your credit health, check out our Credit Score Q & A below.

The bottom line is that credit scores will follow you for years to come. Without a good credit score, you could suffer by paying too much in interest or being turned down for the loans you want and need. Instead of allowing this to happen, get up to date on credit scores. The credit score 101 here, provides you with the information you need to get ahead.

Find out what your score is, what it should be and how to get it there. Then, feel confident that you can get the loan that you want and need.

A quick crash course on what you need to know about your credit score, how to protect it and what you can do to make it better.

Questions & Answers

What exactly is a credit score?

A credit score is a future indicator or predictive measurement of an individual’s credit worthiness to pay back debts based on their credit history.

What is a FICO score?

An Acronym for Fair Isaac and Company, a FICO score is the standard of assessing credit risk for companies adopted by the three major credit reporting agencies: TransUnion, Experian and Equifax in the mid-80s. Scores range from 330 to 850.

Credit Type Score Range Percentage of Population
Excellent 700 to 850 15%
Good 660 to 699 25%
Fair 600 to 659 25%
Bad 330 to 599 35%

What is the difference between a credit score and credit report?

A credit report is a consolidated record of an individual's outstanding debts and timeliness of payments made against those accounts (< 30 days, 30 to 60 days, > 90 days). A credit score is a proprietary formula applied to an individual's credit report to estimate credit worthiness at a given point in time.

Credit reports contain information on:

  1. Existing Credit Accounts
  2. Payment History
  3. Credit Inquiries
  4. Debt Outstanding Amount to Credit Limit Amount
  5. Bankruptcy & Liens

What is considered when calculating a credit score?

Each credit bureau weights credit history information differently. Typical levels of importance for determining the credit worthiness of an individual include:

Credit Info Example Percentage of Importance
Payment Timeliness / History e.g. Percentage less than 30 days >> 40%
Debt / Balancing Outstanding e.g. Debt Balances >> 35%
Duration of Credit Established e.g. 1, 5, 10 years >> 10%
New Credit e.g. New accounts >> 10%
Types of Credit e.g. Revolving, mortage, etc. >> 5%

Why do you need to keep track of your credit score on a regular basis?

Identity theft is a threat to everyone. The Federal Trade Commission estimates that more than 9 million people have their identity stolen each year. Having your identity stolen is not only highly inconvenient, it's also expensive to restore.

Thanks to several advances in analytical software, you can avoid identity theft through preventive identity protection, like subscribing to a service that monitors changes in your credit profile and protects you if anything changes. See which identity theft services is right for you.

What you can do to improve your credit score:

Do’s & Don’ts To Improve Your Credit Score

  1. Do make credit card and loan payments before they’re due. If you’re going to be late, contact the company before payment is due.
  2. Do lower your amount of outstanding debt as much as possible. A lower debt utilization ratio (debt divided by available credit) means less risk.
  3. Don't cancel your oldest credit accounts – unless you’re closing on a mortgage.
  4. Don't shop around for credit on a quarterly basis. Lenders who review your credit report view it as a warning sign for increasing debt.
  5. Do vary the type of credit you use: credit cards, installment loans, and loans with fixed payments.