W hat is a Credit Score?
A credit score is a number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. Lenders use credit scores to evaluate and estimate your credit risk. The most widely used credit scores are FICO scores, the credit scores created by the Fair Isaac Corporation. Lenders can buy FICO scores from all three of the major credit reporting agencies.
The FICO score range is 300-850. The higher your score, the less of a risk you are considered to be by lenders. Each of the three credit reporting agencies probably has different information about you, and that means your score will be a little different from each one.
Your FICO score is based 35% on your payment history. This includes whether or not there are late payments, collection items, liens, or judgments. Your score is also based 30% on the amounts that you owe. Basically, when a high percentage of your available credit has already been used, this can indicate that you are overextended, and reflect poorly on your score. The other 35% is split between your length of credit history, the types of credit you have, and whether that credit is new.
There are several ways to improve your credit score. Paying your bills on time, getting current and staying current are the biggest tips on improving your FICO score. Other, less obvious ways include keeping balances low on credit cards or paying off debt rather than "transferring" it. It is also important to remember that your credit score is based solely on information reported to the credit agencies. Accounts that aren't reported to the credit agencies won't affect your score positively or negatively.
You should review your credit report from time to time for accuracy. You have a right to obtain one free credit report per year from each of the three major credit reporting agencies. The easiest way is to go to www.annualcreditreport.com, or call toll-free 1-877-322-8228.
Of course, you can always contact my office at (530)244-0300. We will do a free bankruptcy evaluation and can provide you with free information from FICO.
Courtesy of Amy Spencer-Martyn
Spencer-Martyn Law Offices
Redding, CA 96002
This information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
* reproduced in part with thanks to Fair Isaac Corporation, "Understanding Your FICO Score"