What Is A Credit Score

Your personal credit score is a number that is based on a statistical analysis of your credit report. Your credit report represents how credit worthy a person is and the likelihood that you will pay your bills. Your credit score, which is primarily based the information in your credit report, typically comes from one of the three major credit reporting bureaus: TransUnion, Experian and Equifax.

What is in your credit score report?

  • Your name
  • Your Social Security number
  • Your current home address
  • Previous home addresses
  • Information on both your current and past loans
  • Public record information which can include court judgments, bankruptcies, liens
  • Companies who have previously reviewed your credit.
  • Your credit score consisting of 3 digits

A person’s credit score is calculated by an algorithm which was developed by the Fair Isaac Corporation (FICO). Since its creation, three major corporations who are referred to as the main “credit bureaus” specialize in collecting and reporting on financial histories on individuals. These three credit bureaus are called Experian, Equifax and TransUnion. While, the exact formula that is used to calculate a person’s credit score is not publicly documented, these credit bureaus provide general guidelines about financial behavior which can affect your final credit score.

When calculating your credit score, the basic formula consists of:

  • 35%: Your credit history of late and on-time payments.
  • 30%: The amount of credit currently available on your open credit card accounts
  • 15%: The age of each credit line .. the older the better
  • 10%: How frequently you have applied for a new line of credit.
  • 10%: Various factors, such as what types of credit lines you have open

A lender will use your personal credit report in order to determine your reliability as a candidate for a loan. This credit report indicates how well you have proven yourself at being able to handle debt responsibly and will help banks decide if you would become a worthy loan customer. In order to lock in low APR rates or secure any special deals offered on loans you will need a higher credit score. Having a bad credit report could possibly prevent you from be able to attain any loans and can also hurt your chances to buy a car, open a new credit card or even rent a home.

Every person is entitled to a receive a free copy of their credit report once a year. This is an offer that you should take advantage of. When you get your updated credit report, check to make sure all of the figures are accurate and act quickly to correct any mistakes listed on the credit report. These errors might include clerical errors, instances of identity theft or simply incorrect information. If you have a low credit score, you need to begin working on a financial rehabilitation plan. You can attempt this on your own or with the help of a certified debt counselor.

What is your credit score influenced by?

  • Your credit payment history
  • Any outstanding debt
  • How long you credit history is
  • The extent and frequency of negative credit information
    • Bankruptcies
    • Charge-Offs
    • Collections
  • The ratio of credit debt compared to your total available credit

What defines a good or bad credit score?

  • 720 and Up : Excellent
  • 680 – 719 : Good
  • 620 – 679 : Average
  • 580-619 : Poor
  • 500 – 579 : Bad
  • 500 or Less : Awful

 For help getting your credit score higher, or to answer what is a credit score, call (816) 994-4600

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