Understanding Your Credit Score

Credit scoring systems turn the raw data found on credit reports into a number that measures creditworthiness, or in other words, the likelihood that an individual will be able to pay back a loan. When people talk about a "credit score," 99% of the time they are talking about the "FICO" credit score. FICO is an acronym based on the names of the mathematicians who created the scoring algorithm and the company (Fair Isaac - now called "FICO") they subsequently founded. FICO gives the following guidelines on the weight of different factors in your FICO credit score:

Payment History - 35%

Amounts Owed - 30%

Length of Credit History - 15%

New Credit - 10%

Types of Credit Used - 10%

While this list is a bit general it gives you a good idea about the factors involved in your credit score. Not surprisingly, financial institutions are most concerned about your past payment history when deciding to extend you a new loan. If you have a history of taking out loans and paying them back in a timely fashion, your chances of getting more credit are greatly improved. On the other hand, if you have a history of missed payments, collections and bankruptcy, your credit score will suffer.

Credit Score Tips

While the credit rating agencies only give us general guidance about credit scores, there are several accepted norms you can use to help keep your credit score healthy:

Get Your Credit Score

There are three major credit bureaus: Transunion®, Equifax® and Experian®. Each bureau maintains their own credit reports and FICO scores. Individual credit report information and FICO scores can vary from bureau to bureau though, unless one bureau has an error in it's reports, both should be substantially similar from one company to the next.

CardJoy has partnered with Transunion® to offer access to your credit score and credit report for $1 as well as a 7 day free trial of their credit monitoring service. Full details are available on the Transunion site.

Understanding Your Credit Report
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