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A credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. Each score is based on the information then in your credit report. Credit scores affect whether you can get credit and what you pay for credit cards, auto loans, mortgages and other kinds of credit. For most kinds of credit scores, higher scores mean you are more likely to be approved and pay a lower interest rate on new credit. Want to rent an apartment? Without good scores, your apartment application may be turned down by the landlord. Your scores also may determine how big a deposit you will have to pay for telephone, electricity or natural gas service. Lenders look at your scores all the time. They look at your scores when deciding, for example, whether to change your interest rate or credit limit on a credit card, or whether to send you an offer through the mail. Having good credit scores makes your financial dealings a lot easier and can save you money in lower interest rates. That's why they are a vital part of your financial health. Consider a couple who is looking to buy their first house. Let's say they want a thirty-year mortgage loan and their FICO credit scores are 720. They could qualify for a mortgage with a low 5.5 percent interest rate*. But if their scores are 580, they probably would pay 8.5 percent* or more -- that's at least 3 full percentage points more in interest. On a $100,000 mortgage loan, that 3 point difference will cost them $2,400 dollars a year, adding up to $72,000 dollars more over the loan's 30-year lifetime. Your credit scores do matter. *Interest rates are subject to change. These rates were offered by lenders in 2005. When lenders talk about "your score," they usually mean the FICO® score developed by Fair Isaac Corporation. It is today's most commonly used scoring system. FICO scores range from 300-850, and most people score in the 600s and 700s (higher FICO scores are better). Lenders buy your FICO score from three national credit reporting agencies (also called credit bureaus): Equifax, Experian and TransUnion. In the eyes of most lenders, FICO credit scores above 700 are very good and a sign of good financial health. FICO scores below 600 indicate high risk to lenders and could lead lenders to charge you much higher rates or turn down your credit application. There are many types of credit scores. They are developed by independent companies, credit reporting agencies, and even some lenders. As a rule, the higher the score, the better. As a rule, credit scores analyze the credit-related information on your credit report. How they do this varies. Since FICO scores are frequently used, here is how these scores assess what is on your credit report. 1. Your payment history - about 35% of a FICO score 2. How much you owe - about 30% of a FICO score 3. Length of your credit history - about 15% of a FICO score 4. New credit - about 10% of a FICO score 5. Other factors - about 10% of a FICO score 1. When you get your credit scores, make sure you also learn the highest and lowest scores possible, as well as the most important factors that influenced your scores. These factors can give you an idea of how you can improve your scores. 2. Getting your own credit scores or credit reports won't affect your scores, as long as you order them from one of the sources we list here. 3. Review your credit reports for accuracy. Mistakes and omissions on your credit reports probably will affect your credit scores. If you spot an error, contact the credit reporting agency and the creditor whose information is wrong. 4. If you have questions or problems with your credit scores, contact the company that provided them to you. Your credit scores change when new information is reported by your creditors. So your scores will improve over time when you manage your credit responsibly. Here are some general ways to improve your credit scores: Improving your credit scores can help you: Credit Scores Are Vital to Your Financial Health
Why Do Your Scores Matter?
What is a Good Score?
Not Just One Score
Five Parts to Your FICO Credit Scores
Have you paid your credit accounts on time? Late payments, bankruptcies, and other negative items can hurt your credit score. But a solid record of on-time payments helps your score.
FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.
A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible credit management.
If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score.
Several minor factors also can influence your score. For example, having a mix of credit types on your credit report - credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit - is normal for people with longer credit histories and can add slightly to their scores.Helpful Tips
Boosting Your Scores