Let’s Clear Up the Confusion; There is a difference between a credit score and a credit report.
A credit score is one of the most important numbers that we carry through life, and BBB wants to help you maintain and improve it.
The credit score system, developed by the Fair Isaac Corporation, is commonly referred to as a FICO score. The score is a number between 300 and 850 that helps lenders calculate an individual’s credit worthiness and risk. A FICO score below 560 is considered to be poor, and above 760 is rated as excellent.
It is the result of analyses of consumers’ credit history and existing habits that can determine whether you qualify for a credit card, new car, student loan, mortgage, or business loan, and most importantly what your interest rate will be.
FICO weighs several elements in determining individuals’ credit score :
Payment History..........35% Amount Owed........30%
The first thing any lender wants to know is whether you pay your bills on time. This is one of the most important factors in a FICO Score.
Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower. However, if your debit load takes up a high percentage of your available credit, it may reflect an inability to properly pay off lines of credit.
Length of Credit History.....15%
In general, a longer credit history will increase your FICO score, However, even people who haven’t been using credit long may have a high FICO score, depending on how the rest of the credit report looks.
Types of Credit.....10%
The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
Research shows that opening several accounts in a short period of time represents a greater risk, especially for people who don’t have a long credit history.
A credit report shows a consumer’s credit history, including how much credit they have available, how much credit is used and any pattern of late or missed payments, These reports are maintained by the credit reporting agencies Equifax, Trans-Union & Experian and is available free of charge every 12-months.
Consumers are not entitled to have free access to their credit score through the three credit reporting agencies; however, it can be obtained anywhere from $12 to $20.
Some online services, supported by advertising sales, provide free access to consumer credit scores, others offer membership access and others offer free trial services. Recently, some credit card issuers are attracting customers by offering to allow consumers to check their credit score without charge every month.
BBB offers the following information to improve or maintain a good credit report and credit score.
Establish credit – a good credit history is essential. If you don’t have any credit cards, you might consider opening an account, using it sparingly and paying off the balance each month. Someone with no credit cards tends to be regarded as higher risk than someone who has managed credit cards responsibly.
AnnualCreditReport.com – Consumers are entitled to one free credit report from each of the three credit reporting companies every 12- months. In today’s world of increasing identity theft, it is essential that consumers check their credit report to ensure some has not stolen their identity.
Don’t Hide – If you are over your head in debt, contact your creditors. If you become unemployed or face other financial setbacks contact your creditors and work out a plan for suspended or reduced payments. Communicating with your creditors is essential to managing your credit and maintaining a good faith effort for repayment.
ABOUT the BBB
For more than 100 years, Better Business Bureau has been helping consumers find businesses, brands and charities they can trust. In 2014, consumers turned to BBB more than 132 million times for BBB Business Reviews on more than 4.5 million businesses and Charity Reports on 11,000 charities, all available for free at bbb.org.
BBB Serving Middle Tennessee and Southern Kentucky, founded in 1961 and serving 38 counties in Middle Tennessee and 7 Southern Kentucky counties, is one of 112 local, independent BBBs across North America.