Whatever method is used, however, it’s clear that it’s very important to have as good a credit score as you can manage. This little number can greatly impact not only whether or not you’ll qualify for credit, but if you do, what you’ll pay for it. Obviously, someone with a poor credit score, deemed a high risk will pay higher interest rates to borrow money than will someone who is not a risk to default.
A traditional credit score from the big three credit bureaus is broken down into several criteria for judging just how well you handle your credit obligations. These five factors combine to give a comprehensive picture of your credit history. The first is how timely you pay your bills. This accounts for a whopping 35% of the score. Second is the amount of money you owe and how much available credit you have left. This one counts for another 30%. Thirdly is the length of your credit history. Fourth, the types of credit you have is judged at 10%. And finally are any recent or new credit applications, another 10%.
Some of the things that don’t come into play for your credit score include age, race, sex, employment, income, education, marital status, whether you’re a homeowner or rent, and a few more. Essentially your credit score is a snapshot of your credit history, nothing more.
While your credit score is very important, it can contain errors. That’s why it’s important to look at your credit report at least once a year. Your reports can contain errors, and the FICO scores are using these reports for their data.