Your Credit Score and What it Means
A credit score is a mathematical model consisting of numerous variables used to
estimate one's credit risk. The most commonly used model is called FICO®
(named after its creator, the Fair Isaac Company). Your FICO® credit score
is used to evaluate your creditworthiness by giving you a certain amount of
points based on the information contained in your credit report and your
debt-to-income ratio.
Different scoring systems have different numbering systems. These can range
from a low of 300 to a high of 900. With FICO, typically, a score of 660 or
higher means your credit is considered very good. A score below 620 means that
you might have trouble obtaining credit or you might have to pay a higher
interest rate. A score above 700 means you have premium credit and can quite
easily obtain the financing you need at the lowest available rate.
It should be noted that not every single lender uses the FICO® model;
however, the models they use are very similar to it. Also, lenders vary in what
is important to them in terms of loan approval. One lender might place more
weight on payment history, while another places more weight on outstanding
debt.
Typical Credit Score Composition:
Past payment history 35%
Amount of outstanding debt 30%
Length of credit history 15%
Number of recent credit applications 10%
Types (mix) of credit and loans 10%
Total 100%
It isn't just your own payment history and loan mix that plays a part in
determining your score -- your particular profile and payment history is
compared to millions of others.
The following factors are NOT included in computing your FICO® credit score:
- Demographic variables, such as your age, race, religion, sex, or marital
status
- Your salary, profession or employment history (although your salary does
determine how much you can borrow)
Tips on improving your credit score are offered in our credit repair kit.
Do You Know the Score When It Comes to Your Credit?
Taking time to improve your credit score can be literally like paying yourself
$300 an hour, if your goal is to improve your credit before you apply for a
mortgage loan. In any event, it pays to improve your score as much as possible
to enjoy lower interest rates on credit cards and all types of financing. Your
FICO® credit score can be purchased for about $13.00 and you can have
immediate access to it.
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