What makes up a credit score? This is a mystery to most people. A credit score is a numeric weighting of various financial factors such as credit history, job history and debts. The most common model used to measure credit worthiness is the Fair Isaac & Co model orFICO. A FICO score can range from 300 on the low end, meaning a high credit risk, to 850 on the high end or a low credit risk.
Your FICO score is weighted on multiple factors at different ratios.
- 35% for timeliness of payments
- 30% for the amount and type of outstanding debt
- 15% for length of credit history
- 10% for types of credit IE credit cards, store cards, auto loans
- 10% for recently opened accounts and number of accounts
There are 3 primary credit reporting agencies, Experian, Trans Union and Equifax. It is common for each agency to report different scores. A creditor will typically pull all 3 scores but occasionally they will pull only 2. When all 3 scores are pulled the creditor will use the middle score. If only 2 are pulled they will use the lower score.
Now more than ever your credit score will effect what it costs you to access credit or if you are able to access credit at all. It is important to monitor your credit report regularly. You can receive 1 free credit report a year at www.freecreditreport.com . The last thing you want to happen is to find the house of your dreams only to find your credit score is too low.
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