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Monday, November 14, 2011

What Makes Up Your Credit Score?

In today’s society, credit scores play a pivotal role in our everyday lives.  It could mean the difference between obtaining a low interest loan or even getting a loan at all! It can also be the determining factor in getting an apartment or many times getting employment.
To say the least, maintaining a healthy credit score is vital.

The top company in the field of credit scores is FICO. 

FICO is the Fair Isaac Corporation. As a consumer you have 3 FICO scores; one from each of the major credit bureaus: TransUnion, Experian and Equifax.  These FICO scores range from 300 to 850. The lower the number, the higher the risk and the higher the number, the lower the risk for a potential creditor.

In general, to be considered a solid credit risk it is best to be “north” of 720 as a minimum.

Information in your credit report is used within a mathematical algorithm to create your score. Theoretically your score will predict the likelihood that you will become seriously delinquent on your credit obligations within the next 24 months.

Each person’s credit score is made up of 5 factors:

35%  - Payment History. Your history of making credit payments in a timely manner.

30%  - Amounts owed. Total amount of debt being carried versus the total available

15%  - Length of credit history.  How long have you had open lines of credit? The
            longer your credit history is, the better.

10%  - New credit.  How often do you apply for new credit?

10%  - Types of credit used.  “The mix” of your credit including, lines of credit, and
            whether  or not it is installment or revolving credit.

Many people fear that closing an account will do damage to their credit rating.  The truth is that closing an account in and of itself won’t hurt your credit score because you will still get the value of that account whether it is open or closed. The account will continue to age even if it’s inactive or has no balance.

After 10 years closed accounts will get eliminated from your credit report.

The real key is how much open and available credit do you have compared to your current balance. This is known as your credit utilization rate. Folks with the higher credit scores, in the upper 700’s, are typically using only 10 percent of their available credit at a given point of time.

How Can I Receive A Free Copy of My Credit Report?

First of all, forget all those websites with the phrase “Free Credit Report” in them. The place to go is  You can obtain one free credit report each year.

Another option is to request a free credit report by phone (877)322-8228 and have it mailed to you. 

Lastly, you can simply write to: Annual Credit Report Request Service; P.O.Box 105281; Atlanta, GA 30348-5281.

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