Devoting time now to understand what is on your credit report and what is your credit score will open the door to great opportunities your whole life.
The basic details:
•The big three credit agencies mainly pay attention to what you owe and your payment history.
•The most commonly used credit score is known as a FICO score which has a range from 300 to 850.
•Standards can change as to what is considered a good credit score.
•Many professionals agree that 720 is a good score. 740 or higher will usually grant you access the lowest interest rates. However, some mortgage companies will approve a loan with a minimum 580 score. Lower credit scores do have higher requirements to obtain a loan approval.
•Your score helps lenders establish the likelihood that you will be late 90 days or more in the next two years. Your past credit history is a good predictor of how you will behave when you obtain new debt.
Your FICO score is based on five elements, weighted as follows:
•Your payment history: 35 percent of your score.
•Amount of debt you owe: 30 percent of your score.
•Length of your credit history (longer is better): 15 percent of your score.
•Amount of new credit you request (too many requests for credit, especially in a relatively short period of time, is a not good): 10 percent of your score.
•Types of credit you use: 10 percent of your score.
Mortgages lenders, auto loans and credit cards use your score to help understand your ability to pay debt. Some newer credit models factor in your income and job history. Paying your bills on time is the most effective thing you can do to build a good credit score.
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