It seems like almost everything that relates to borrowing money requires a look at your credit score. Banks and lenders use your credit score to determine whether or not they should lend you money. Want to get a car loan? Want to get a mortgage? A credit card? These all require a check of your credit score. There are three main entities that keep track of your credit report - Experian, Equifax and TransUnion.

A loan officer will use your credit score to increase or decrease your interest rate. Even the electric company uses the credit score to decide whether or not to charge you a deposit for new service. Every time you look around someone is talking about a credit score, but what does it mean?

In a nutshell the credit score is a number that determines your credit worthiness. The higher your score, the more worthy you are of credit. On the other hand, the lower your score, the less worthy of credit you become. The score is a numerical summary of all the information on your credit report. Lenders use the credit score in order to determine how much risk is involved with extending you credit or a loan. The credit score ranges anywhere from 300 to 850, 300 being the lowest possible score. Most people have a score that is in the 700-800 range.

Things that determine your credit score

There are many different factors that are used to determine your credit score. Some of these factors have a greater impact on the score than others. The most significant factor for your credit score is the number of delinquent accounts you have. This accounts for 35% of your credit score. Each time you are more than thirty days late on a payment creditors report you as being delinquent and your score decreases. The frequency and length of delinquencies both have an impact on your score. Creditors see delinquencies as a sign that if you were late before you will be late again. They want to be sure that you will pay them on time.

Another factor that influences the credit score is the way that you use credit. This includes the total amount of money you owe and the total amount of credit that you have available to you. This makes up 30% of the credit score. Having a lot of debt and maxed out credit cards will hurt your credit score.

The length of your credit history is 15% of the credit score. Having credit for a longer period of time with the same creditors is favorable. Creditors assume that if you have had credit for a long time then you are less risky than someone who has only had credit for a short period of time.

The mix of credit that you have accounts for 10%. If you only have revolving credit cards, it is not as favorable as having revolving credit along with installment credit. When you have a variety of credit, it shows that you know how to handle money.

The last 10% of the credit score is comes from the number of times that you ask for new credit. It looks worse to creditors if you have made several requests for credit in a relatively short period of time. A high number of credit applications looks worse coupled with negative points in other areas, such as delinquent payments.

What factors are not included in determining your credit score

Credit scoring does not include factors such as age, race, income, education, marital status, a previous decline of credit, length of time at an address, or the ownership of a home. Many times lenders and creditors will use this information in order to approve or decline an application, but these items do not affect the credit score.

Your credit score is based solely on information that is contained in your credit report. If your credit report contains inaccurate information, this will be reflected in the credit score. It is important to check both your credit report and credit score periodically and prior to making any large purchases. You can improve your credit score by disputing any inaccurate information on your credit report.

When all is said and done, your credit score is the measure that lenders use to determine if you’re at risk of not being able to pay back the money you borrow. If you have a low credit score, you’ll have a hard time getting any loan or if you do get a loan, the interest rate will be much higher. So you should pay attention in trying to keep your credit score as high as possible.

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