What is My Credit Score

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What Makes a Credit Score

A FICO credit score ranges from 300-850.  What is FICO? FICO stands for Fair Isaac Corporation, which is the most common credit scoring system in the United States.  A credit score is a measure of an individual’s credit history and a measure of payment history, credit usage, length of credit history, new credit, and types of credit lines.

 

Breakdown of Credit Score

 

Payment History

First off, payment history accounts for 35% of a credit score. Payment history on auto loans, mortgages, credit cards, and student loans are weighted based on the balance and late payments on larger installment loans carry more weight.

Credit Usage

The second most weighted item on your credit report is credit usage. Credit usage accounts for 30% of your credit score.  The higher the credit utilization, the more it will affect the score.  For example, if you have a credit card with a limit of $1,000 and you keep the balance at $100, this will be more favorable for your score than if you had a $900 balance on the card. Carrying large balances will definitely hurt your credit score.

Length of Credit History

Length of credit history accounts for up to 10% of your credit score.  A longer credit history paints a better picture of your ability to repay a loan and a creditor likes to see a longer history because it shows stability.

New Credit

While credit lines are positive factors, you should avoid opening too many credit lines at the same time.  This signals that you may be having financial problems.

Types of Credit Lines

A healthy credit report will have a mix of credit lines, such as revolving credit, credit cards, auto loans, and a mortgage.  Each type of credit line shows a creditor how financially responsible you are with all types of credit lines. Paying bills on time and having a healthy mic of credit cards shows a creditor you are responsible because you care about paying your bills on time.

Late Payments Credit

Our society is built on financing and credit.  Back in the olden days, when you wanted something, you would save for it.  Then, if it was something you wanted and it was very expensive, you would save up for it for a long time.  People didn’t finance house, cars, clothes, jewelry, vacations, and eating out. They sacrificed and saved until they could afford to pay cash for something.

Maxing Out Credit Cards

While it is nice to be able to get it today and use credit lines, there are consequences.  Some people take out so much credit and max out credit cards so that they cannot make even their minimum monthly payments.  Eventually late payments start to hit their credit report.  Therefore, late payments on your credit report hurt your credit score.  One late payment can drop your score by hundreds of points.  Be sure to pay your bills on time because late payments can hurt you when it comes time to buy a house or a car, or obtain any other type of financing.

About the Author: Arlene Disessa is a senior writer for California Loans with Gustan Cho Associates in the Greater Sacramento, California area, including Placer County, and the cities of Rocklin, Roseville, Granite Bay, El Dorado Hills, and Auburn.  Call Us today at 530.813.0661 or email at adisessa@rhloans.com.  Arlene Disessa is available 7 days a week to answer your questions.  Do you have bad credit? Call Us today on ways you can improve your credit score and qualify for a mortgage loan. For more useful information visit http://www.california-loans.com

 

 

 

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