Your credit score and you.
So I’ve mentioned a couple of times that there are multiple ways that you can monitor your credit report. Your credit report is different than your credit score. Your credit score is an estimated risk to a lender. So if you are looking to buy a car and the dealer runs your credit report they are actually looking at their risk. Their only interest in your credit report comes to your FICO score. Any single time that you’ve tried to get credit, whether getting a job, renting an apartment, or getting your utilities ran - this number is what’s looked at.
Your credit score can be between 300 and 850. The national average of credit scores is 676. If you have any types of problems on your credit, you can probably estimate that you are around 600. If you file bankruptcy, you can expect a credit score of around 475-500. If you have a lot of credit problems and are in danger of bankruptcy or foreclosure, expect lower than that.
What raises your credit score?
1) Paying bills on time, every time. Make sure you have pulled your own credit report so that you know which of your accounts report to credit agencies monthly. Those are the ones to pay special attention to on the date that you are paying a bill, because they report positive payments. Most other bills (such as utilities, rent, or other services) only report your bad experiences. This makes up 35 percent of your total score.
2) Your debt to income ratio. This is how much money you owe vs what you bring in every month. If you have a ton of credit, they guess that you use your credit and makes you more of a risk than someone who has one credit card and has never used it is a better risk. Of course, if you don’t have a record of good credit it keeps adding up. So what you should do is get credit and keep your account balances low. This is makes up 30 percent of your total score.
3) Balance of types of credit - if you have a multiple types of loans like revolve credit (credit cards) and installment credit. (mortgages and car loans) This makes up 10 percent of your total score.
4) Credit inquiries - This is a check on how much credit you are trying to get. If you don’t have any other problems with your credit, this will have little effect on your score. If you have any other negative problems (late payments, bills sent to collections, etc) you need to be careful on how much credit shopping you’re doing.
So after all of that, are you curious what your credit score could be? Check out the Bankrate/FICO calculator.