Make The Most Of Your Credit Score
A credit score is a formula that is used to predict risk for lenders. To create a credit score, analysts may use information in credit reports, account histories, or applications. Their goal is to accurately identify the commonality of your timely paid accounts, as well as your delinquent accounts. The results of all this computing and analyzing, is a number that is your credit score.
Lenders use credit scores to help decide whether to issue a new account or loan, raise the credit limit on an existing account or even to decide what interest rate to charge on a new or existing loan.
There are different types of scores, though many of them are developed by Fair, Isaac and Company, Inc. These are commonly referred to as "FICO scores."
It's important to understand that your credit score is never a single number. It can vary; depending on which of the two major credit bureaus supplied the credit information used to calculate it, what kind of loan is being considered, and what formula the individual lender uses to calculate it. For example, mortgage lenders typically will request copies of both of your credit reports (TransUnion and Equifax) and use a combination of the two reports to determine a score for you.
Your "FICO" score appears on your credit report and is determined by several different factors that also appear on your credit report. The amount of credit inquiries you have, the amount of balances on your accounts, and your payment history are all factors that influence your "FICO score."
Keep in Mind:
- Your credit score can change frequently as information is updated in your credit reports.
- Lenders may use different credit scoring formulas customized for their loan products when calculating your score.
- Credit scores are calculated using the information in your credit report, even if that information is not correct.
What's In A Credit Score?
According to Fair Isaac Co, there are five categories of factors that go into your credit:
| Payment History | 35% |
| Amounts You Owe | 30% |
| Length of Credit History | 15% |
| New Credit | 10% |
| Type of Credit in Use | 10% |
The two most important factors that go into your credit score are your payment history (have you paid your bills on time?) and the amounts you owe (how much debt do you carry?).
Together, these categories make up about two-thirds of your credit score. That means that if you want to improve your credit score you should focus on paying your bills on time and paying down debt.
How Can I Get My Credit Score?
You can typically purchase a credit score when you order your credit report, either through one of the two major credit bureaus or through an online service that sells credit reports to consumers. You can also obtain a free credit report through www.equifax.ca or www.transunion.ca.
It's an excellent idea to check your credit report and score at least six weeks before a major purchase such as a home or car, to give yourself time to correct any mistakes or problems.
Is your credit score where you want it to be? Follow this step-by-step strategy to rebuild your credit rating and fix your credit score with recommendations on what you can do to improve your credit score even when you’re in debt.
