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Credit Card eZine - News and Articles about Credit Cards

Credit Card eZine - News and Articles about Credit Cards

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Understanding Your Credit Score

[May 11th, 2015]

Credit scores can be tricky. Everyone knows it’s important to have a good credit score if you want to buy a house or a car, get approved for an apartment, maybe even get a job. But are all credit scores created equal? FICO now has 19 different credit scoring models. What’s the difference?

The short answer is, not much. These credit scores are based on different information from different credit reports, but unless there is a major error in your information from one of the bureaus, generally the scores will be about the same.

Credit scores are calculated based on the same five pieces of information, no matter who is doing the scoring. They are: payment history, debt to credit ratio, length of credit history, types of credit, and new credit applications. Let’s look at each one in a little more detail:

  1. Payment history. This is just whether or not you pay your bills on time. If you get at least the minimum payment made by the due date each month, you’re good on this one. Because it counts for the most, this is the most important thing you can do to keep your credit score healthy. Understand that payment history is the number one biggest factor in any credit score you are given, by any credit bureau.
  2. Debt to credit ratio. This is how much you owe, and how much available credit you still have. The trick with this one is to keep your debts at less than 30% of your available credit. So, if you have a $1,000 credit limit, don’t put more than $300 on your credit card.
  3. Length of credit history. This one counts for less than payment history and debt-to-credit ratio, which are number one and two, but it still accounts for a healthy chunk of your credit score. If you don’t have a long credit history, there’s not much you can do about it, but they key is to never close a credit account. Keep those accounts open and in good standing. Use them once in a while – even the retail store card you aren’t sure you really need. It’s best to keep any credit card account open, rather thangetting rid of a lot of your plastic.
  4. Types of credit. Do you have a credit card, a car loan, and an installment loan? If so, that looks great to the credit scoring bureaus. Potential lenders – and credit bureaus – like to see a nice mix of types of credit on your report.
  5. New credit applications. Sure, there are great new credit cards coming on the market fairly frequently. But hold off on applying to all of them at once. If you’re applying for new lines of credit constantly, it can drag down your credit score.

The bottom line is, your credit score is pretty much the same from one bureau or agency to the next. Follow the guidelines above, and you’ll be in good shape for getting approved for that dream job, apartment, or loan.

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