Understanding Your Credit Score

What is a credit score?

credit gage imageWhen you request your yearly free credit report, you may notice that your credit score is not included. Your credit score is a number that is based off of your credit history at the time the score is requested. Usually a fee is required to obtain this number.

When you have a high credit score it means that you have good credit. High scores range between 700 and 850. If you have a low score is means you have bad credit. Low scores are usually around 300. Depending on how you obtain your credit score, you will notice that the three different credit reporting agencies may have a different credit score for you. (Consumer.gov)

Is knowing my credit score necessary?

When it comes to your credit, knowing what is contained in your credit report is very important, and your credit score is a number that should reflect what is in your credit report. If you know that you have a good credit history you will most likely have a good credit score. If you know that you have had trouble paying your bills on time or a high level of debt compared to your income, you may have a lower score.

It costs money to find out your credit score, so make sure that you really need to know it before you pay for your score. It may be interesting to see what the number is but make sure it is worth it to you to spend your money on obtaining this number.

Also make sure that if you do decide to pay to see your credit score that you are not automatically enrolled in a credit monitoring service that is charged to the account you used to see your credit score monthly. (Consumer.gov)

What goes into a credit score?

Credit Score Pie ChartAll of the credit reporting companies have their own way of calculating your credit score. Even with these differences in calculating scores, each company does look at the same group of factors when coming up with your credit score. These include:

  • the number of loans and credit cards you have
  • how much money you owe
  • how long you have had credit
  • how much new credit you have
  • how you pay your bills

These percentages are just guidelines based on the importance of the five categories for the general population. Depending on your credit grouping the percentages presented above may be different.

The companies then take a look at the information on your credit report and give it a number - this is your credit score.

If you look at your free credit report each year and make sure that everything on it is correct, you pay your bills on time, do not open unnecessary credit lines and keep your outstanding debt to a minimum, you will have a good credit score. Making the decision to pay a credit reporting agency to see this number is always up to you. (Consumer.gov)

What is a FICO® Score?

If you do decide to request your credit score from one of the credit reporting agencies, what you will get back is your FICO score. FICO is a company that works with the credit reporting companies to analyze your credit report and come up with your credit score (or your FICO score).

For a quick over view and further details on your FICO credit score, check out this PDF (PDF Download) from FICO to learn more about your credit score. You can also navigate to the www.myfico.com site to explore more resources that can help you understand in depth what is in your FICO score, how it is calculated, how to interpret your score, how to make your score higher and further details about what this score means for you.

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