The FICO credit scoring system uses a proprietary mathematical algorithm to translate credit report information into a three-digit number. The score ranges from a low of 300 to a high of 850; the higher the number, the better the score. Your score may differ from one credit bureau to the next, because each bureau may have different credit information in its database.
Scoring Factors
Your FICO credit score relates directly to the information in your credit report. How well you pay your bills accounts for 35 percent of your score. How much debt you have accounts for another 30 percent. Fifteen percent of the score comes from the length of your credit history. The type of credit mix you have determines 10 percent, and the final 10 percent measures the amount of new credit for which you recently applied.
Creditworthiness
How you handle your credit accounts determines whether you will have a high or low score. According to MyFico, paying your bills on time increases your credit score. This single factor accounts for the bulk of your FICO score. Late payments, charge-offs, repossessions and other derogatory items will lower your score. For example, a 30-day late payment can reduce your score by as much as 45 points, while a bankruptcy will send it plummeting by as much as 240 points.
Accurate Reporting
Because your FICO score derives from the data in your credit report, it's imperative that the information in the report be as accurate as possible. Under the Fair Credit Reporting Act (FCRA), bureaus must remove erroneous data from credit reports. If your report contains errors, correcting those errors is one step toward improving your score, according to Bankrate. The FCRA gives you the right to file a dispute with the bureau in order to have errors corrected or removed. The bureau has 30 days to investigate your claims and make corrections. You can file a dispute online at the bureau's website, or by phone or mail using the number or address on your credit report.
Time Limits
If you have poor credit, bear in mind that it's not permanent. Your FICO score changes as the data in your report change. The FCRA limits the amount of time a negative item may appear on a credit report to seven years, with a few notable exceptions. Chapter 7 and 11 bankruptcies both remain on a report for up to 10 years, as do dismissed or non-discharged Chapter 12 and 13 bankruptcies. Unpaid tax liens remain for up to 10 years in California, and indefinitely in other states.
Warning
Be wary of credit repair companies that promise to raise your credit score for a fee. Their claims that they can repair your credit may be fraudulent, according to the Federal Trade Commission. The FCRA does not require credit bureaus to remove accurate accounts from credit reports. Also, the FCRA gives you the right to dispute errors on your own for free.
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