How your credit score is calculated

Everyone should know their credit score, but most people don’t know it. You need to take advantage of the times when it’s free to access it.

If you apply for a car loan, mortgage, or personal loan you have a right to your score. Ask your lender or broker for instructions to obtain it.

Your credit card company may also offer you free credit scores. Check to see if this service is offered.

So, what is your score? It calculates your ability to pay your credit payments on time. You need to understand that it does vary based on the agency reporting it. They all use a different but similar sliding scale.

Most websites offer you a credit score, and many may tell you it’s free or simply $1. Make sure you read the fine print. Most of the companies lure you in with the offer of “free,” but the fine print indicates that you are being signed up for a trial period for a credit monitoring service.

The best way to access your score for a nominal fee is to check your credit report at Annual Credit Report, and then click that you want your score for a one-time fee at the end of the session with one of the credit reporting agencies.

Score calculations
An idea score is between 700 and 800+ points. Here’s how your score is calculated:

1. Payment history = 35%
Whether you pay your bills on time is the bulk of your score, so don’t pay your bills late.

2. Amounts owed = 30%
This is calculated by the amount of money you owe versus the amount of credit available to you. Spread your debt among multiple credit cards so you’re not using more than 20% of your available credit.

3. Credit history = 15%
Don’t close your credit card with the oldest credit history. This will hurt your score. Keep those accounts open.

Establishing a good credit history can really help your score, because it shows you are consistently responsible.

4. New credit = 10%
This is where you have to resist temptation to open a new credit card at every store just to save an extra 10 or 20% that day on your purchase. Every time you open these new credit cards, you impact your score. Try to keep the new lines of credit to a minimum.

5. Credit mix = 10%

You need to have a good mix of credit. If you just have credit cards, you’re not doing a good job in this arena. You need to have a mortgage, a car loan, and credit cards. That gives you a good mix of credit so you can earn the maximum number of points.

Related links you may like:
Click here to learn how to check your credit report
Click here to learn the 10 consumer reports every consumer should get


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