You have a credit score if you ever borrowed money from a financial institution, opened a credit account or performed a similar credit-related activity. Credit bureaus use data from your credit reports, plug the information into proprietary formulas and calculate a three-digit number that summarizes your credit worthiness. A high score means you are likely to pay your obligations, according to the Consumer Federation of America, while a low number indicates default risk.
Range
The Consumer Federation of America advises that the credit score usually refers to the number calculated by Fair Isaac Corporation (FICO) and is often called a FICO score, although credit bureaus also have their own scores. The usual range is 300 to 850, so, technically, 850 is the highest possible score. Most people never achieve that number, with average scores falling in the 600s and 700s. MSN Money writer Liz Pulliam Weston warns that scores of 620 and below are subprime and make it difficult to get approval for credit. The credit bureaus may use slightly different data when determining credit scores, so your score may differ somewhat among the various providers.
Contributors
Five major areas contribute to your credit score, according to the MyFICO website. Your payment history (whether you pay bills on time) makes up 35 percent of your score, while your debt amount (how much money you owe) accounts for 30 percent. Fifteen percent is based on the length of time you have used credit, while account types and recent accounts each influence 10 percent of your score.
Review
The Fair Credit Reporting Act entitles you to obtain copies of your credit report every year at no cost, according to the Federal Trade Commission, but FICO and the credit bureaus are under no obligation to disclose your credit score for free. You can pay to obtain your credit score, or you can estimate it based on data in your credit reports. You can order your credit reports through annualcreditreport.com for free with no strings attached once every 12 months. Your credit score is high if there is little or no negative information on the credit reports of the three major credit bureaus--Equifax, TransUnion and Experian. Things such as late payments, high debts, little variety in account types and numerous credit application inquiries bring your credit score down.
Repair
Your credit score can be improved if it is lower than you would like. You probably cannot boost it to 850, but it only needs to be in the 700s to give you considerable borrowing power. Pulliam Weston advises paying off your credit card balances, or at least paying them down significantly, to raise your score. You should concentrate on paying by the due date, because payment history carries the most weight in the credit score formula, according to the MyFICO website.
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