Decoding Your Credit Score
Credit scoring can be a bit messy and hard to understand. Between the 3 major credit bureaus, FICO, the different scoring models…there is a lot to misunderstand.
But when you get down to it, there are only a few things you really need to understand your credit score and how it impacts your ability to make financial purchases and decisions.
There are several credit score factors that go into your credit score: payment history, debt owed, how long you've had the credit, the types of credit you're using, and the amount of recent applications for additional credit.
Of these, the most important is payment history. If you want good credit in order to get the loans you want and pay less for interest, you have to prove your trustworthiness by paying your bills in a timely manner. Really, this is common sense.
Beyond that, you can better your score by paying down your debt. This goes especially for those accounts where the amount owed is close to (more than 80%) or more than the available credit. Once again, this makes sense…before getting more debt, you need to pay off what you have.
In a similar vein, the last 3 factors of your credit score also make sense. The longer you've had good standing credit, the better. Potential creditors want to see that you're not overextended in unsecured debt like credit card debt. They also don't like to see that you've been making a lot of applications for credit…that's usually a sign of financial instability. Don't let that keep you from shopping around—that's to be expected—but also don't apply for credit unless you actually need it and have plans of using it.
If you can understand these things about your credit, and can implement them, you'll be on your way to having a good credit score.
But when you get down to it, there are only a few things you really need to understand your credit score and how it impacts your ability to make financial purchases and decisions.
There are several credit score factors that go into your credit score: payment history, debt owed, how long you've had the credit, the types of credit you're using, and the amount of recent applications for additional credit.
Of these, the most important is payment history. If you want good credit in order to get the loans you want and pay less for interest, you have to prove your trustworthiness by paying your bills in a timely manner. Really, this is common sense.
Beyond that, you can better your score by paying down your debt. This goes especially for those accounts where the amount owed is close to (more than 80%) or more than the available credit. Once again, this makes sense…before getting more debt, you need to pay off what you have.
In a similar vein, the last 3 factors of your credit score also make sense. The longer you've had good standing credit, the better. Potential creditors want to see that you're not overextended in unsecured debt like credit card debt. They also don't like to see that you've been making a lot of applications for credit…that's usually a sign of financial instability. Don't let that keep you from shopping around—that's to be expected—but also don't apply for credit unless you actually need it and have plans of using it.
If you can understand these things about your credit, and can implement them, you'll be on your way to having a good credit score.
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