So what is all this fuss about the credit score? What makes up your credit score anyways? Payment history makes up 35% of your score.
The amount you owe is 30% of your score.
Your credit history is 15% of your score and applications for new credit in your record accounts for 10% of your score.
While most people have at least some working knowledge about credit scores, there are many myths circulating regarding credit scores.
Here are some of the most common ones: 1.
You have only one credit score.
In fact, there are at least 6 primary ones for consumers - even more for businesses.
The primary driving force is the Fair Isaac Corp.
, or FICO.
There are three main agencies.
Equiflex whose score is called Beacon; TransUnion is called FICO Risk Score; and Experian's is called FICO II.
They each have their own formula, but the scores should come within 20 points of each other.
2.
If you close some of your credit cards you improve your score.
If you close a card you have had for a long time, you could actually lower your score.
The reason being, the best scores go to people who use cards moderately, over a long period of time.
Credit score agencies place a lot of emphasis on what is called the "utilization ratio.
" This is your total debt as a percentage of all your available credit.
When you close a card, you actually lower your available credit, therefore, lowering the Utilization Ratio.
Going into foreclosure will most definitely lower your score below the desirable rate for your financial future and any future loan you may wish to acquire.
3.
Shopping for the best credit rates can hurt your score.
If you shop for rates for a loan over a shorter period of time, say 2 weeks, they are most likely to clump those requests together.
If you extend if over a long period of time they are likely to count the requests as more than one so be wise and timely.
Checking your own credit score will not lower your credit.
Asking a friend from a financial institution to check it for you will.
4.
Paying off your credit cards in full every month gets you a better score.
It is good to show payment history from time to time, but make sure those payments are on time.
Understanding the importance of your credit score will help you realize how important it is to avoid the things that can strongly impact your credit score like bankruptcy and foreclosure.
Avoid it and you can protect your financial future.
The amount you owe is 30% of your score.
Your credit history is 15% of your score and applications for new credit in your record accounts for 10% of your score.
While most people have at least some working knowledge about credit scores, there are many myths circulating regarding credit scores.
Here are some of the most common ones: 1.
You have only one credit score.
In fact, there are at least 6 primary ones for consumers - even more for businesses.
The primary driving force is the Fair Isaac Corp.
, or FICO.
There are three main agencies.
Equiflex whose score is called Beacon; TransUnion is called FICO Risk Score; and Experian's is called FICO II.
They each have their own formula, but the scores should come within 20 points of each other.
2.
If you close some of your credit cards you improve your score.
If you close a card you have had for a long time, you could actually lower your score.
The reason being, the best scores go to people who use cards moderately, over a long period of time.
Credit score agencies place a lot of emphasis on what is called the "utilization ratio.
" This is your total debt as a percentage of all your available credit.
When you close a card, you actually lower your available credit, therefore, lowering the Utilization Ratio.
Going into foreclosure will most definitely lower your score below the desirable rate for your financial future and any future loan you may wish to acquire.
3.
Shopping for the best credit rates can hurt your score.
If you shop for rates for a loan over a shorter period of time, say 2 weeks, they are most likely to clump those requests together.
If you extend if over a long period of time they are likely to count the requests as more than one so be wise and timely.
Checking your own credit score will not lower your credit.
Asking a friend from a financial institution to check it for you will.
4.
Paying off your credit cards in full every month gets you a better score.
It is good to show payment history from time to time, but make sure those payments are on time.
Understanding the importance of your credit score will help you realize how important it is to avoid the things that can strongly impact your credit score like bankruptcy and foreclosure.
Avoid it and you can protect your financial future.