Your Credit Score Questions, Answered!
Credit scores: everyone has one, and yet they are still a bit of a mystery to most.
What does your credit score really mean? How do you know if you’re improving or hurting your credit score if you don’t understand the mechanics behind it? Here are your top credit score questions, answered!
How is my credit score calculated?
Your credit score is calculated by several different factors. Your FICO score factors are as follows:
Credit history 15%
Payment history 35%
Amounts owed 30%
New credit 10%
Types of credit used 10%
A more detailed breakdown of the FICO credit scoring system available here.
How much does credit really help/hurt you?
The answer really depends on whether you are in need of credit. If you pay cash for things and aren’t applying for a rental, car loan, or mortgage, then your credit score won’t have much impact on your life. However, your credit is checked when you apply for any type of loan (such as a personal loan, auto loan, or mortgage), as well as when you apply for a new line of credit. Even if things like a personal loan or mortgage aren’t something you need now, keep in mind building a great credit history takes time, It is in your best interest to start developing good credit building habits now so that your score will already be in good shape should you ever need it to be.
Is this the most important measurement as you apply for credit or is it just one of many and not have as much influence as you’d think?
It certainly is the most significant factor and is the best indicator available for lenders to determine how risky of a borrower you are. Even though negative items on a credit report can sometimes be explained, the influence of your credit report to a lender for any loan will be great.
How long does it take to repair a bad score?
That depends on what needs to be repaired. There really is no quick fix. Depending on the circumstances, fixing a bad score will take time. But don’t fret – there are ways to make improvements.
What kind of circumstances can bring down a good score?
Things like missing payments, applying for too many lines of credit at once, and closing too many cards all have a negative impact on your credit score. Tax debts, having little available credit, and your debt-to-available-credit ratio also affect your score negatively. Other things that can negatively affect your score are repossessions and failure to pay your mortgage.
What are classic “silly” to make to avoid getting a bad score?
- Not paying bills on time. These days, it is easy to set up automatic payments so you don’t have to worry about missing any.
- Ignoring a debt and letting it accumulate with interest and late fees until it brings your score down with it!
- Opening too many lines of credit (such as opening multiple store credit cards to take advantage of discounts) within a short period of time can lower your score.
What is the actual, likely difference in interest rates that you’d get for different scores?
There is no way to estimate the difference in interest rates for varying scores, as this will vary from lender to lender. However, the higher the score, the more likely you are to be offered the best rate and terms. With a lower score, you may be required to have a cosigner and may pay higher interest rates. To improve a low score, work on regularly paying your bills on time, keeping your balances and revolving debt down, and paying off debt rather than moving it around (don’t rob Peter to pay Paul). Also, try to limit the amount of credit accounts you apply for and open.
Struggling with debt and have questions about how it affects your credit score? Contact Tayne Law Group today via email or at 866-890-7337 to schedule a free, no obligation phone consultation.