Your guide to understanding your credit score
Welcome! You are in the right place. You have questions and we have answers. Below you will find some of the most useful information available, all compiled for your convenience. Your credit is one of your greatest assets. Let us help you learn how to protect it.
Don’t worry, you are in good hands. You will see that after having all the answers to your questions, a new world of financial possibilities will open for you.
Do you know the difference between your credit report and your credit score?
If you don’t know the answer, let us tell you, you are not alone. Confusing these two concepts can be easy, since they are indeed related. However, when analyzing in more detail, you can begin to see the differences between the two and how they affect your financial well-being.
Here are the answers to the most common questions you may have:
What is a credit report?
A credit report is a transcript of all credit-related decisions – both good and bad – that you have taken over the course of your life. It includes information on your existing loan contracts, such as credit-card bills, mortgages and student loans, and lists of questions about your credit history. It may also include information unrelated, such as utility payments. It also describes how much you owe to your creditors, how long each of yours accounts have been open and how regularly you have made timely payments. Credit reports can also mention public related records, such as court decisions, tax liens on property or bankruptcy filings.
What is a credit score?
A credit score is similar to a grade given to your credit report. It is a three-digit number between 300 and 850 given by the credit reporting agencies. What is important to know is that different reporting agencies – Equifax, Experian and TransUnion – can provide different scores. So when you request your score, you actually get three numbers. If any of these numbers is very different from the others, you may want to examine your report in more detail to see if there are errors. A higher credit score can indicate a lower risk for the lender and you more likely to qualify for a loan.
The factor that has the biggest impact on your score is your payment history and ability to pay its debts on time. Late payments will decrease your score, except for late payments related to the mortgage.
- Payment History 35%
The total amount of debt you have, including credit cards, student loans and car loans. If your credit cards are at the limit, this can reduce your value score, even if the amount owed is not large. Having credit accounts and owing money doesn’t mean you’re a high-risk borrower, but owing a lot of money on numerous accounts can suggest that you are financially overextended. Part of the science of scoring is determining how much debt is too much for a given credit profile.
- Amounts Owed 30%
Length & History
In general, a longer credit history will increase your credit score because it shows that you can responsibly manage your available credit over time. The time you have used your credit for and how it was handled. If you show a pattern of appropriately managing your loans, keeping balances low and paying your bills on time, your score will be affected positively.
- Length & History 15%
People today tend to have more loans and to shop on debt more frequently. But opening several loan accounts in a short period of time can represent a greater risk, especially for people with short borrowing histories. However, credit scores are able to distinguish between a history of many new accounts in a short period of time, and simple shopping on debt. Fico scores generally do not equate rate shopping with higher credit risk.
- Frequency 10%
Types of Credit in Use
Your score will be improved by a healthy mix between your debit cards, retail account, installment loans, finance company accounts and mortgage loans; it is not necessary to have one of each, and it is not a good idea to open new accounts if you don’t intend to use. This mix usually won’t be a key factor in determining your score, but it will be more important if your credit report doesn’t have much other information on which to base.
- Types in Use 10%
Credit score ranges
Most credit scores range from min 300 to 900 max, with the majority of people in the 600 to 800 range. To get the most favorable interest rates, you’ll need a score of 720 or higher. In terms of interest rates, on average, a person with a score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a credit score of 720.
A general guide to interpreting your score:
- Scores ranging from 770 to 850 are considered very good, and the best credit rates are usually available to borrowers within these scores.
- Scores above 700 are considered good, and most borrowers’ credit scores are at this level. The average is 725.
- Scores below 650 may have difficulties obtaining a loan, and have higher interest rates and / or higher down payments.
What information goes into my credit score?
For the most common credit scores, the information that goes into your score comes from your file at the credit reporting companies, which is why it is so important to review these files to ensure they are accurate.
Here are some of the common factors that make up a typical credit score:
- Your bill-paying history
- The number of accounts you have and of what kind
- How much of your available credit you are using
- How long you have had your accounts open for
- Your recent credit activity
- Whether you have had a debt collection, foreclosure, or bankruptcy, and how old these are
By law, the calculation of your credit score cannot use or take into account factors such as race or color, religion, gender, national origin, or marital status.
5 Myths of Good Credit Score
Find out today’s 5 Myths and Facts of having good credit score.
The first step in getting a good credit score is granting the credit bureaus access to your credit report. The credit score is also known as Empirical, Beacon Score or Fico Score, and is categorized as very good or excellent when it reaches 770 or more. A score below 650 means that you may have difficulties when trying to obtain a loan.
5 Myths of Bad Credit Report
When having bad credit we diminish our possibilities of obtaining financing and we may miss out on opportunities or we can even become less credible for others, but we must be aware that it is not the end.
Credit is nothing but debts or obligations you have assumed over time and your behavior with them. Good or bad credit is determined: payment experience, credit utilization, time you have had credit, types of credit and inquiries.
All information collected by the three credit bureaus (Transunion, Equifax, Expirian) determines your credit score. Theoretically, each agency may assign a different score based on the information collected.