A credit score is a number that is calculated based on your credit history to give lenders a simple answer for people who are applying for credit or loans. The credit score number helps the lender identify the level of risk they may be taking if they lend to you. The same result can come through reviewing the actual credit report however the credit score is quicker and less subjective.
The system is based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time.
The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Calculating the Score
The credit score range from 300 to 900.
35% of the score is based on your payment history. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc.
30% of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits.
15% of the score is based on the length of time you've had credit. The longer you've had established credit, the better it is for your overall credit score.
10% of the score is based on the number of inquiries on your report. If you've applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report.
The more recent these inquiries are the worse for your credit score. FICO scores only count inquiries from the past year.
10% of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference.
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