What Should You Know About Your Credit Score?

Credit Score is one of the most important pillars of your personal finance life. Your credit score decides your eligibility to receive credit and rate of interest you have to pay against a loan. If you are working to improve your financial life, it is important to understand the basic concepts involved in credit score. 

Credit Bureaus Credit Score Calculation Criterion

Equifax, Trans Union, and Experian are the three main credit bureaus working the United States. The calculation of credit score might vary from bureau to another. However, individuals with a clean debt repayment history, careful use of available credit, and use of appropriate type of credit obtain a higher credit score. According to financial experts, a credit score between 600 and 850 is suitable for securing credit with lower interest rates. If you are looking for an affordable loan, try to improve your credit score up to 700.

FICO score is the most widely accepted credit score in U.S. and it is commonly used as benchmark in different mortgage application. Some important factors influencing FICO score are:

Priority level 1: Payment History

Your payment history is the most important part of your credit score and individuals with a habit of paying late bills suffer most. According to experts, your payment history indicates your likeliness to default on your payments and contributes nearly 35 percent to your credit score.

Priority level 2: Current Outstanding Debt

Your outstanding debt is the next major contributor towards your credit score. People with a debt equal to their credit limit experience a steep decline in their credit score. Individuals with outstanding debt against multiple accounts are likely to face the consequences. Credit institutions calculate the amount of debt you owe against your credit limit and it contributes nearly 30 percent to your credit score. 

Priority level 3: Duration of Credit History

A long credit history has a better chances of getting credit score boosts. Most of the credit companies consider it as an important part of your credit history and it contributes 15 percent towards your credit score. There are 3 sub-classifications including the type of accounts, time since the accounts are operational, and use of these accounts. So, if you have a credit account, do not close it and maintain your accounts for as long as possible. 

 

Priority level 4: Application for New Credit

If you are trying to improve your credit score, avoid applying for multiple new credit accounts at once. It shows that you need immediate credit and affects your credit score adversely. It accounts for 10 percent to your overall credit score and it can be dangerous for individuals with short credit history.

Choice of Credit

Credit calculation companies consider types of credit accounts when they lack information on an individual. It is important to maintain a healthy mix of installments including finance company accounts, installment loans, retail accounts, and credit card accounts.  

3 Red Alerts for Your Credit Score

Avoid these under any circumstances:

1.  Foreclosure/short sale
2. Bankruptcy
3. Charged off accounts

Source: Realtytimes.com

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Yvette Belisle
Alaskan Spirit Realty
Real Estate Brokers of Alaska
(907) 868-2811
yvette.belisle@gmail.com
www.alaskanspiritrealty.com