When it comes to buying a home or even getting a job, we are all judged by the three digit number permanently attached to our name and social security number – our credit score. Even though everyone has one and it can make or break your financial future, many people know very little about the credit scoring system.
Your credit score is a three digit number between 350 and 850. Anything above 770 is considered excellent and anything below 550 is considered awful. People who maintain credit scores of above 700 receive the lowest interest rates and are considered low risk borrowers. The breaking point is around 620. People with scores at that rate or lower are often denied for loans. People between 620 and 700 may be offered credit at a higher interest rate.
| FIVE MAJOR FACTORS THAT DETERMINE YOUR CREDIT SCORE: |
| YOUR PAYMENT HISTORY (35%) The number of credit card accounts or loans you have, how many of those have been paid late and how long it’s been since your last past-due payment. If you have been late before, creditors assume it will happen again. |
| HOW MUCH YOU OWE (30%) How much you owe, how much of your credit lines have been used and the number of balance accounts at zero. Creditors prefer borrowers who keep balances low but close accounts that are not being used. |
| CREDIT HISTORY LENGTH (15%) The total length of time of your credit report, the length of time since your accounts were opened, and the amount of time since the account’s last activity. People who have a longer credit history are less of a risk. |
| CREDIT TYPES & HOW THEY ARE USED (10%) The total number and types of accounts and the way they are used. A combination of account types and balances far below their limit produce better scores. |
| NEW CREDIT (10%) The number of recent credit inquiries. You may be penalized if you recently opened accounts. |