Analyzing Your Credit Score

A good credit rating is one of the most valuable things anyone can have. Unfortunately, due to the hard economic times of the past few years, many people’s credit has suffered, often due to circumstances beyond their control. If this sounds like you, then one of the first steps to improving your rating is to know how to read your credit score.

Reading a Credit Score

Scoring methods differ among agencies. However, the majority of lenders use the Fair Isaac Corporation (FICO) score to decide if they will extend credit to a particular customer and, if so, what terms they will offer. A score of 730 and above is considered excellent, while 670 to 729 is good. Conversely, scores of 539 and below are regarded as poor. The lower yours is, the more difficult obtaining credit is likely to be.

What Determines Your Credit Score

There are many factors that go into determining your credit score, they include:

Payment history – this makes up 35% of the score. It gives the lender an idea of how promptly you have paid your bills in the past. Some of the things that can affect it are late payments, accounts sent to collection agencies, and any bankruptcies you may have filed. Loans that were never paid back can severely reduce your score, especially ones that were made in the recent past.

Outstanding debt – how much of your income is tied up in paying off credit accounts influences your score by 30%. This is affected by factors such as how many credit cards you have and what the current balances on them are. Cards that are maxed out can be especially derogatory. As a rule of thumb, you should try to keep your balance at 25% or less of the total credit limit.

Length of credit history – the longer you have had credit, the more likely lenders are to approve your form. Good credit that has been established for several years is highly desirable, because it tells lenders that the customer is relatively stable and is likely to honor the terms of the loan. This factor makes up15% of your total score.

Amount of new credit asked for – if you have recently requested for several new sources of credit, this will negatively affect your score, especially over the short term. New accounts should be added slowly and kept current. This factor reflects 10% of your score.

Types of credit – your score will benefit if you have had a variety of loans in the past, such as a mix of credit cards, car loans, and various types of installment agreements. This accounts for 10% of your FICO score.

Raising Your Score

If you’re unhappy with your current score, then there are many ways to improve it. These include:

  1. Paying down the balances on your current accounts.
  2. Making future payments on time. If you’re significantly behind, you may need to contact your creditors to make special arrangements.
  3. Being cautious in getting started for new credit. Nothing creates a red flag for creditors faster than an customer who has tried to obtain credit from several different lenders in the recent past. This is especially true if one of the companies ran what is known as a “hard” credit inquiry, such as the type normally used by banks.
  4. Allowing time to improve your score. The longer you make payments on time, the more likely it is that lenders will regard you as a good risk.

Here at we want you to be better able to understand your credit score. We want to give you a working knowledge of what it is, how it’s determined, and how to make it better. Raising your credit score takes a little self-discipline and patience, but the rewards are worth it. The process starts with obtaining your FICO score to see where you currently stand.

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