Lenders use your credit score to determine if they will lend you money and what the interest rate will be. Your score is based on how well you paid your past debts, whether your debt load looks too high, and how much credit is available to you. Credit scores are based on a FICO formula. FICO stands for Fair Isaac and Company, the company who developed the scoring system. The scores run from 300 (worst) to 850 (best) and are generated through complex statistical models. The models analyze your credit history based on five categories: payment history, amount you owe, length of credit history, new credit, and credit mix.
Payment history: Thirty-five percent of your score comes from your credit account payments, with most recent payments counting more than older payments. If you have paid your bills on time consistently, your score will be higher.
Amount you owe: Thirty percent is based on your current debt load and how much you owe on all of your accounts if you generally carry an unpaid balance on credit card accounts. Getting credit only when you need it and using it below your credit limits leads to higher scores.
Length of credit history: Fifteen percent of your score is based on how long you've used credit.
New credit: Ten percent is based on recent credit applications. You'll be scored lower if you have been loading up on credit. In other words, don't get a credit card just for the 10 percent discount on that day's shopping. Having access to lots of credit, even if you don't use it, lowers your credit score. If you do not want to receive unsolicited credit offers, call 1-888-5OPT-OUT (1-888-567-8688), and your name will be removed from all three credit bureaus for possible solicitation.
Credit mix: The last 10 percent is based on the type of lenders you use. Prime borrowers have scores in the 620 to 660 range (this varies among lenders), and they qualify for loans with the best interest rates and terms. Only Equifax will give you your credit score online; it will cost you $12.50. Once you answer a series of questions that will verify you are who you say you are, your credit report will be available to you online for 30 days. To get your FICO score, go to www.equifax.com. Knowing your credit score may not be worth the $12.50 cost. You can get a free credit report from all of the credit bureaus, and this gives you a good picture of how you look to others. If all of your credit is relatively good, use the information about your credit history to negotiate with new creditors.
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