Personal Credit Score- What’s in a Number?

There comes a point in nearly every American’s life when learning about personal credit score becomes a must. This is the one number that can help you get through the slightly difficult world of credit.

The Basics

Lots of people worry over techniques for raising credit score. Before you even think about this though, a logical first step is to understand the concept first. A credit score is basically a three digit number which credit companies use to determine how risky it is to lend cash to you. A bad score may mean you are less likely to get approval for a loan or you may be slapped with higher interest rates.

The score itself can be obtained through different scoring models. The most common model is the one developed by the Fair Isaac Corporation. This is why credit scores are sometimes known as FICO scores. Variations of this model have also been used by the three major credit reporting companies, Equifax, Experian and Transunion. An individual’s scores from these companies may not exactly be the same. Dramatic differences though should alert you to possible errors in your credit report.

A personal credit score can usually fall anywhere between 300 to 850. The lower your score, the more bad it is. In general, scores above 720 are considered good. It has been reported that more than 25% of Americans fall within the 750-799 range.

Factors that Affect Scores

If you are interested in improving or raising credit score, it’s important to find out first what factors affect it. There are five major factors as reflected in your credit report that determine your score. These factors hold different levels of importance.

• The most important factor of your personal credit score is your payment history. This accounts for 35% of your score. Your most recent activity is paid most attention. In general though, activities that can drive your score to the bad side include delayed loan payments and declaring bankruptcy. Raising credit score equals paying on time all the time.

• Amount owed is 30% of your score. The formula used for computing your score takes into account how much money you owe. Owing a lot doesn’t necessarily mean you’ll get a bad score. Owing a lot close to your limit could hurt you though. This means, your available credit and balances are also taken into account.

• Length of credit history is 15%. The longer your credit history is, the better it is for your personal credit score. Your score can be more favorable if you have a good track record with the same lenders. The desire to build a credit history however should never be an excuse to apply for a variety of loans and credit cards over a short span of time.

• The different types of credit used take 10%. Experts say that the more varied your credit types, the better for your score. It basically means that you are financially able to intelligently handle a variety of credit. This does not hold true though if you have a record of too many unpaid loans of different types.

• New credit is also 10%. This takes into account how many applications for loans or credit cards you have made in a short span of time. Having too many too soon can be a bad sign because this could be interpreted as borrowing because you are in a fix. Even if you aren’t in a fix, too many simultaneous new loans may mean you may encounter difficulties with timely payment.

Now you know what your personal credit score stands for. As soon as you begin building your credit history, you can start thinking about raising credit score slowly.

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Word Count: 620 words
Main Keyword: personal credit score
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