What is a Credit Score?

what is a credit score

What is a credit score, exactly? A credit score is a numerical number assigned to an individual based on the data that exists in their credit bureau files. The score is used to predict if a client is able to pay his credit bills on time over the next 24 months. The majority of your credit score is based on your actions in the past. However, there are methods that can improve your credit score.

FICO

FICO is a company that produces the most commonly used credit score. There are other credit scores used in addition to the FICO score, but this score remains the prime source used when reviewing a customer for credit. The FICO score is composed of five parts, each of which varies as a percentage of the total score. These values are fluid and are regularly updated by FICO to improve the accuracy of their score. These five values are:

  • total credit used vs. total credit available
  • payment history
  • new credit amount
  • a mix of credit accounts
  • length of credit history

The top two items listed are the most important in making up your credit scores.

Credit Bureaus

There are three major credit bureaus, all of which are used to contribute to your FICO score. The three credit bureaus are named:

  • Experian
  • Trans Union
  • Equifax

Customers under the law have the right to obtain a yearly print out of their credit report, but not their credit scores. This can be bought directly from FICO. Each of the three credit bureaus listed above has also developed their own credit scores as well. If you buy a credit score from these agencies, they will sell you their own score. It is close to the FICO score, but not the same thing. Consumers have the right to challenge the credit bureau to correct any errors on their account. If the errors are not corrected in a reasonable amount of time, consumers can report the credit bureau to a federal consumer protection agency.

Improving Your Score

These days, to obtain credit you need a FICO score of over 640. If your score is below this number, take a look at your report. Check the percentage of credit that you have vs. your total account credit limits. Anything you can do to lower this percentage is good, except obtaining lots of new credit. Things to consider are paying off debt and asking your credit cards for an increase in your credit limit. Don’t close cards as this could increase your percentage and lower your score. The next part to work on is your past payment history. Make sure this is accurate. While you can’t change past late payments, make sure that each account notes when your account was brought up to date and that it is in good standing, if this is so. Late payments can stay on your credit report for up to seven years or more, so it is important that these payments are listed accurately. If you are bringing your accounts up to date to improve your score, do this over several months to make your score rise over time. This looks better to creditors. You can also add a letter of explanation to your account for any severely overdue payments, such as ones over 60 to 90 days for several months. In the letter, you should provide the reason for the problem, and you should point out that this incident was a rare, uncontrolled occurrence.

Check Your Score

It is always a good idea to view your credit score every few months and note the value. This way, your score is up-to-date when you need to seek credit, and your credit score won’t pop up with unexpected results. To keep up with the latest news on credit scores and finances, sign up with CreditInnovationGroup.com for free. They always have the latest news about what is happening in all things credit.

For a free Credit Analysis with one of our Credit Specialists, call us at (800) 251-2249

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