Basic Credit Score

When people refer to your basic credit score, they are talking about a credit score calculated and reported by one of the three major credit bureaus: TransUnion, Experian and Equifax. Each of these credit bureaus use the FICO credit scoring system developed by Fair Isaac Corporation. Scores vary with each of these bureaus because of the differences and timeliness of information that is reported to them.

How Your FICO Score is Calculated

There are five elements that go into factoring your FICO credit score. Your payment history contributes around 35 percent and how much you owe accounts for 30 percent. The length of time your credit history has been active contributes to 15 percent, new credit counts for 10 percent, and other factors count for the remaining 10 percent. A variety of credit accounts, such as an auto loan, home mortgage, credit cards and personal lines of credit demonstrate normal credit activity, which is good for you.

How Your Credit Score is Used

Banks and other lenders, potential landlords, insurance companies, utility companies and potential employers all use your credit score and other information found on your credit report to make a decision about doing business with you. This may seem intrusive, but it is common practice. Employment applications, for example, often have a credit report release as part of the application.

How You Can Hurt Your Credit Scores

Late payments, balances higher than 30 percent of your credit limit and accounts closed by the creditor all damage your credit. A foreclosure, bankruptcy, judgment or an account closed by the creditor can have significant negative impact on your credit score. Credit scores range from 300, which is very bad, to 850, which is excellent. A score of 700 is very good, 620 is okay. Below 620 is generally considered the subprime range.

How You Can Improve Your Credit Scores

Review your credit reports every four to six months. You can request a free copy of your credit report once a year from AnnualCreditReport.com (see Resources). Check for accuracy in the amount and the date you made payments and report any errors immediately. Make sure your payments are all made on time. Set up automatic payments through your bank or create a system to help remind you when payments are due. Reducing the amount that you owe, will also help your scores.