Your credit score gives you a good or bad reputation in the eyes of banks and lenders. It is based on your credit history and tells them whether you are fiscally responsible. You may not even know your score because you are not entitled to get it for free. You can purchase it from Fair Isaac Corp.--or FICO, the company that developed the score--or from the credit bureaus to see if you fall within the national average or in a more desirable range.
Definition
A credit score is a three-digit number compiled by FICO or the credit bureaus. It's a quick indicator of your creditworthiness. The score is calculated with a formula that considers financial data like loans, credit cards and other accounts, payment history, available credit lines and amount of credit currently used. FICO is the most widely used score. It ranges between 300 and 900, with higher numbers indicating less credit risk.
Average
Creditreport.com pegs the average American credit score at 680. This is not high enough to qualify for the best interest rates or more desirable loan terms, but it doesn't impair the consumer's ability to open new accounts.
Location
Average credit scores vary widely by state. Creditreport.com reports that South Dakota residents have the highest score, with an average score of 710. Texans came in lowest, with an average score of 651.
Range
Creditreport.com advises it is best to fall within the range of 720 or above with your credit score. This score allows you to get almost any loan, mortgage or credit card you desire at the most competitive interest rate. You may also get better terms, such as waived annual fees or special credit card rewards. You will have problems if you score is 520 or below. The interest rates you are offered will average 3 to 4 percentage points higher than those offered to consumers with higher scores. You may be turned down completely if your score is very low.
Considerations
You can raise your credit score to a desirable level by focusing on the most heavily weighted factors. FICO explains that 35 percent of your score comes from your payment history, including delinquencies and court judgments against you. Your account balances and the amount of available credit as compared to how much you actually use makes up 30 percent of the credit score. Fifteen percent is based on the length of time you've been using credit and how long you're had specific accounts. Recent credit and the variety of accounts you use each count for 10 percent. Paying your bills on time is the single most important step you can take to raise your score, according to FICO.
0 comments:
Post a Comment