Credit

Credit Scores

Based on the information in your credit report, lenders calculate your FICO (stands for Fair, Isaac and Company) credit score. The score is an indicator of your ability to repay a loan on time. The scores usually range from 300 to 850. A higher score is better; it means the risk of lending you money is less than if you have a low score. It’s also possible for someone not to have a credit score. This usually means that someone doesn’t have enough of a credit history to receive a score.

Your FICO score is made up of the following:

Why Is Your FICO Credit Score Important?

Your credit score will determine if you qualify for credit.

Your credit score will determine if you qualify for credit. Need to buy an adapted vehicle? The lender will check your credit score. In fact, some employers, with written permission, will check credit scores when hiring to help determine who will make a good employee.

Your credit score also determines how much it will cost you to borrow money.

People with higher credit scores are assumed to be less of a risk and therefore typically receive lower interest rates. Those with lower scores are viewed as more of a risk, so the bank will guard against that risk by lending money at a higher interest rate. And when you’re talking about larger loans, such as buying a vehicle or a home, just one extra interest rate point could add up to thousands, or tens of thousands, of dollars in interest.

Helpful Tip!

Your FICO score does not come with your credit report. You may have to pay a fee to receive your score with your report.

You can also use a free service like CreditKarma.com or CreditSesame.com to track your credit score.

Improving Your Credit Score

What happens if you have made some financial mistakes in the past and your credit score is low?

Don’t worry. The good news is that your credit score is constantly updated, so every month, as you begin to make improvements to your credit history, your score will improve. But keep in mind that negative items on your report will stay there for seven years or more, so it will take some time for serious financial mistakes to disappear completely.

Remember, if you make payments on time, you’ll slowly start to raise your credit score.

You can also improve your score if you reduce your total debt. As you can see in the pie chart above, the second largest part of your score is how much debt you have, so if you can lower your overall debt you’ll also begin to make some serious headway with improving your credit score.

You are entitled to one free credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) every twelve months. It’s always a good idea to review your credit report and make sure what is being reported is correct! The information in your report has a direct affect on your credit score.

For your information: Your FICO score does not come with your credit report. You may have to pay a fee to receive your score.