Understanding Your Credit Score

by Brooke Nevils

When we say credit score, we mean FICO score. If you have a credit card or loan that's at least six months old, you have a credit score, which lenders use to decide whether you'll receive additional credit and how much interest you'll pay. FICO (which stands for Fair Isaac Corporation) is the most widely used scoring system, and is based on a 300-850 point scale.

You don't have one credit score, you actually have three. Each of the national credit reporting bureaus-Equifax, Experian and TransUnion-issues a report based on its own data, along with a credit score. According to Tom Quinn, consumer credit expert at Credit.com, the scores are usually within 20 points of each other. Be proactive: Get a copy of all three reports and check for errors.

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Credit reports are free; credit scores are not. You're entitled to one free credit report per year from each of the three credit bureaus-goto AnnualCreditReport.com-but seeing your score along with it can cost up to $10.50. Each additional check will cost anywhere from $5 to $11 depending on which state you live in. See your TransUnion score anytime for free by joining the financial website CreditKarma.com.

How Your Score Adds Up

35% payment history
30% amounts owed
15% length of your credit history

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10% new credit
10% types of credit used

The path to a good score is simple. Pay your bills on time, keep your balances low (30% of your total credit limit or lower), apply for new credit only when you really need it, and keep your credit cards open after you've paid off the balances-especially the oldest accounts: The longer your credit history, the higher your score.

Credit scores are designed to be forgiving. Items stay on your report for seven years, but "the good news is that the scoring system is weighted so that your most recent history matters most," says Quinn. "If you have negative info on your report, keep a perfect payment record for six months and your score can go up as much as 30 points." If payment slip-ups are dragging down your score, consider asking for a "good will deletion," says Deborah McNaughton, author of The Essential Credit Repair Handbook. "If you have a long-term relationship with the lender and usually pay on time, they may be willing to remove a late or missed payment from your account history."

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Share a credit card with caution. If you're added as an authorized user on someone else's card, that card's account information-good and bad-will appear on your credit report, and can affect your score, says Quinn.

Your score isn't carved in stone. It can change every time your creditors report on your account, which can range from every 30 days to once a quarter-so pay off a big chunk of your debt and your score could go up as soon as your next billing cycle.


Article originally appeared on WomansDay.com.

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