Crack the Code on Credit Scores
A credit score is a little like a financial report card. It’s used by creditors (banks, credit card companies and others who might lend you money) to assess your “creditworthiness”; how likely you are to pay back what you borrow. Your credit score can impact your life in more ways than you might think, as it doesn’t just affect whether a bank will give you a loan to buy a car, what interest rate you will pay, or if a credit card company will issue a card you’d like. It is sometimes used when you:
- Apply for a job
- Rent an apartment or home
- Buy insurance
- Start a new mobile phone service
- Begin utility services such as electricity or water
An important factor in maintaining a high credit score is understanding how they are calculated. First, you need to have at least one credit card or outstanding loan that has been active for 6 months for a credit score to be generated. There are three credit reporting agencies: Equifax, TransUnion, and Experian, each with their own scoring methodology using a range of 300 to 850. While FICO (Fair Isaac Corporation) developed different scoring models for each credit agency, the factors utilized in determining each credit score are fairly consistent.
Similar to your grades in school, where tests might be given a greater weight than homework, your credit score is a blend of different factors: