Credit mix (10% of your credit score): How many different types of credit do you have, and how do you handle each?Īccording to the FICO Score, credit scores are rated as follows:.New credit (10% of your credit score): How often do you apply for new credits?.Length of credit history (15% of your credit score): How long have you been managing credit?.Amounts owed (30% of your credit score): What is the ratio of your debt to your credit limit?.Payment history (35% of your credit score): Do you pay your payments on time?.In order to obtain a FICO Score, you must use credit for at least 6 months.įICO uses the following factors to calculate your credit score, listed in order of importance: It was originally invented in 1956 and became the standard for consumer lending in 1989. The FICO score, named after its developer Fair Isaac Corporation, is the longest running credit score. When it comes to credit scores, there are two main players that major credit bureaus and other lenders look to:Įach calculates your credit score slightly differently. There are many ways you can boost your credit score, which we’ll be discussing later on in the chapter and in more depth in Chapter 8. If your credit score isn’t exactly where you want it to be– don’t panic. You need a high credit score to qualify for things like a lower down payment and a good credit card. Your credit score will weigh extremely heavily in their decision to work with you. This is called your credit reference, and it describes your credit history background and creditworthiness to potential lenders. Lenders or other entities that expect regular payments will look at your credit score to determine whether you’re likely to pay your payments and to do so on time. Your starting credit score will be influenced by various factors, such as:
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You’ll start generating credit when you open your first credit card, but it’s important to know how to build credit so that you can start off on the right foot. differs by age and state, but it’s around 675. A credit score can range from 850 to 300. It’s a universal grading scale that shows how “good” you are at managing your debts. If you’ve ever applied for a credit card, tried to rent an apartment, or looked into getting a loan, you’ve probably heard the term “credit score”.Īre you wondering, “What is a credit score?” Your credit score is a number assigned to you based on your financial habits that represents your “creditworthiness”.
In this chapter, we’ll be discussing the credit score’s meaning, how a credit score is calculated, why your credit score is important, and more. Fortunately, we’re here to help you weed out the important info, like the differences between the two main credit scores, from the false, like the belief that unemployment impacts your credit. Unfortunately, there’s a lot of misinformation around about credit scores. Thinking about buying a house? That new car you’ve been dreaming about? Opening that coffee shop or bookstore? Big dreams require financial assistance, and in order to get good financial assistance, you need a good credit score.
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