We all know good credit is a good thing. But it may surprise you to know how critical your credit score is to your future. If you’re thinking of borrowing money for a car, home or other major purchase, your credit score will determine if a lender is able to give you a loan, and how much interest you’ll pay. Auto insurance rates can also be affected by your credit score, and some employers even check credit scores before hiring someone to evaluate reliability. Below is more information to help you understand your credit score and to keep it on the up and up. (source)
What Exactly Is a Credit Score?
Fair Isaac and Co. developed software in the 1980s to help lenders identify credit risks. Since then, their initials (FICO) have been associated with a person’s credit score. Your credit score is a number derived from your credit history. The three credit bureaus are Equifax, TransUnion and Experian, but keep in mind that you will likely receive varying credit scores from each credit bureau.
While your credit score is determined by your credit report, they aren’t the same thing. The biggest difference between the two is your score gives certain parts of your history more weight than others. A credit score breakdown looks like this:
- Payment History: 35%
- Total Amounts Owed: 30%
- Length of Credit History: 15%
- New Credit: 10%
- Type of Credit Currently in Use: 10%