Credit report score is a number that summarizes your borrowing and repaying history in a given period.
Lenders use your credit rating to decide your future credit performance. It’s about how likely you are going to pay your bills on time. The higher your credit score, the better your chance to get approved for a loan with a lower interest rate.
Considering the impact of credit on your financial life, there is no reason you don’t want to learn as much as you can about what credit score is, how it is calculated and what institution responsible for coming up with these three digit figures.
Here are answers to various questions related to credit report and credit score.
What is a Good Credit Report Score?
The score consists of a three-digit number generated with a relative scoring formula based on information found in your credit report in a comparison with information from tens of thousands of people. The widely used credit scoring standard is the FICO credit score, invented by Fair Isaac Corporation.
Your FICO credit score indicates your creditworthiness.
The normal credit report score range is 300 to 850, where 720-above is considered as good credit scores. If your credit score range is below average lenders may not let you borrow more credit. Or even if your application gets approved, it would be for less favorable loan terms.
FICO Credit Score Formula
Your FICO credit rating is actually a grand tally of your credit report figures. It’s the total of various figures divided by the number of items involved. The numbers involve can range from 300 to 850 and the formulas are derivations of the following data:
– 35% of the score is from your payment history. This data speaks of how well you handled credit. It has the largest percentage because lenders are more concerned on how prompt and devotedly you pay your bills.
– 30% of the score is on your existing debts. There is a rule to keep credit balances at 25%, so having a handful of accounts at its seams won’t help your credit score.
– 15% of the score is how long you have handled credit. The longer the time you handled credit is the better for your score. If you have been on credit for a long time lenders will judge you as an experienced money handler.
– 10% of the score is the number of inquiries. Frequent inquiries made to your report would mean a financial instability on your part. If you are that anxious to see credit reports that would also mean you are checking how lenders are reacting to your payments and credit.
– 10% of the score is the types of credit you now have.
Can You Get a Free Credit Report Score?
The Fair Credit Reporting Act (FCRA) lets every citizen of the United States to get an annual free credit report from each of the three credit reporting agencies.
You can also order free credit reports if you’ve been denied credit in the past 60 days, you are unemployed or on welfare, and your report has inaccurate information due to fraud.
Getting your free credit score is, however, different from ordering your free annual credit report.
There are no annual free credit report score from the government! You can view your credit score for free through credit report bureaus but only for very limited time. If you want to get your FICO credit score you will have to sign up with a credit card.
Checking your credit report and credit score regularly is a wise decision. By keeping track of any errors, mistakes or inaccuracies you will be able to maintain a good credit report score. This way you can get the loan that you want every time you apply for one, and with favorable terms.