Credit Card Score / How to Improve Bad Credit? – Philip Tirone

I don’t understand everything that goes into my credit score. Can you help me understand how this number is generated?

First, it is important to note that your credit card score and your credit score are not the same thing. Your credit card score is a letter grade that we created simply to indicate how effectively you are using your credit cards to build your credit score.

Your credit score is a much more important score. This three-digit score is used by creditors to determine whether you will be assigned a high interest rate or a low interest rate. If your credit score is too low, you might not qualify for a loan at all!

The 22 factors that are used to generate your credit score can be categorized into five groups:

1. First, your payment history makes up 35 percent of your score.
2. The next category looks at your outstanding balances. At 30 percent of your score, the amount of money you owe on your credit cards and other loans is a critical part of your credit score.
3. The length of time you have had credit is 15 percent of your score.
4. The type of credit you have—loans, credit cards, mortgages, and the like—accounts for 10 percent of your score, as do
5. Credit inquiries.

How do I know whether my credit score is good or bad?

Your credit score usually falls between 300 and 850. I rarely meet people with scores above 800. I almost never meet people with scores below 450. Generally speaking, a score above 720 is considered excellent; a score below 620 is considered subprime, meaning you likely will not be granted loans in today’s environment.

If your credit score is 700 to 719, you have good credit and are considered a low-risk borrower, but you would qualify for slightly better interest rates if you raised your score a few points. When the credit crunch began, many people with scores in this range starting having a hard time finding loans at all, simply because the lending environment was so tight.

If your score is 660 to 699, you have fair credit.

If your score is 620 to 659, your credit is weak.

Who determines my credit score?

The three credit-reporting bureaus (Experian, Equifax, and TransUnion) are the agencies primarily responsible for reporting your credit score. Many creditors work with all three of these bureaus, each of whom report your score to the creditor. The creditor then considers the middle score to be your credit score. If, for instance, Experian gives you a score of 680, Equifax gives you a score of 681, and TransUnion gives you a score of 774, the creditor will throw away the highest and lowest scores, looking only at Equifax’s score of 681.

Where do I get my credit score?

Never get your credit score from online sources other than myFICO.com. Other scores will represent your “consumer score,” which is not an accurate reflection of what lenders will see. You could also ask a lender for your credit score, though this will result into an inquiry into your credit score, which might cause your score to drop. (See “New Credit Cards” post.)

How does my credit score affect my interest rates?

Your credit score is the single most important factor in determining whether you will qualify for a loan, and what those loan terms will be. In fact, if you have poor credit, you might pay an extra $212,040 over the course of 30 years on a fixed-rate, $300,000 mortgage!

With all this in mind, you are probably thinking: Wow! I want to increase my credit score fast! You are right. Read our post, “How to Raise Your Credit Score Fast.”