How To Read Your Credit Score

March 5, 2008

If you are considering taking out a new loan or getting a new line of credit, you might want to check your credit scores. A system used to calculate credit scores was developed by Fair Isaac and Company, thus they are often called FICO scores. Lenders often consider these scores before deciding whether you are a credit risk or not, and to determine what interest rate you should have to pay on your loan. Your credit scores will have a huge impact on you getting the loan you want at a price that is right for you.

There are some major factors that affect your FICO scores. One of these is your credit payment history. Lenders will consider whether you paid your debts on time and how much you still owe. If you have made late payments, how recent were they? Those that were made within the past six months will have a greater impact than those earlier in your credit history. Payment history makes up about 30% of your credit scores. Another third is counted by the total amount of debt you have. Having a poor credit repayment history and a great deal of debt will affect your credit in a negative way, possibly preventing you from getting your loan.

About 15% is calculated by your total credit history. If you are just beginning to obtain credit, your score will be lower than a person that has well-established credit. New credit and the type of credit it is accounts for about 20%. Lenders are interested in how many new accounts you have recently opened and how many times other lenders have accessed your credit score.

FICO scores range from 300 to 850. A score above 720 is considered excellent. Different lenders will have different requirements, but many consider anything below 620 to be slightly low. If your credit scores are below this number, you can expect to have greater interest rates.

When you check your FICO score, it will not be recorded the same as checks completed by potential lenders and won’t lower your score. You should definitely keep an eye on your credit score and know what it is. This way, you can ensure that you are getting the best terms on your loan and that it reflects your true FICO scores.