Your credit score is a three-digit number that has a long-lasting effect on your buying power.
When you apply for credit, your score will be checked. Employers and landlords also can do a credit check. The higher your credit score, the better the chances are that you will be approved.
Students should become familiar with their credit scores, which can determine whether you get a loan and what your interest rates will be.
There are several scoring methods, but the most widely accepted one comes from FICO. Scores can range from 300 to 850.
These calculations make up a FICO score:
Thirty-five percent is based on your payment history. Pay your loans and credit card bills on time. Early payments will result in a higher number than on-time payments, which, in turn, will have a higher score than late payments.
Thirty percent is based on outstanding debt. Outstanding debt is how much you owe on car loans, mortgages, credit cards, etc. The number of credit cards you have and if those cards are near the maximum borrowing limit will hurt your score.
Fifteen percent is based on the length of time you have had credit. The longer you have been borrowing money (using credit) and paying it back in a timely manner, the better your score will be.
Ten percent is based on new credit. If you have opened several new accounts, that will have a negative on your score. Also, the more inquiries on your credit report in a year, the lower your score will tend to be.
Ten percent is based on the types of credit you currently have. Refrain from going overboard on a bunch of new loan and credit cards in a short period of time, which makes it look like you are desperate for credit. But, it is a good idea to have a credit mix, such as revolving debt and installment loans.
A credit score is derived from a credit report, which is made up of your identification information, such as current and previous addresses; and your history of dealing with credit, such as payments on student loans and credit cards.
It’s important to make sure the information on your credit report is accurate, and it is up to the individual to have any errors fixed.
Get free access to a credit score/report from Experian, Equifax, TransUnion or CreditKarma, once every 12 months, from AnnualCreditReport.com.
Published November 28, 2018
