Also called a FICO score, your credit score is a powerful and important number. It can not only determine the rate you get on a car loan or mortgage, but also whether you qualify in the first place for such loans. Knowing your number, which can range from 300 to 850, allows you to assess your personal financial situation and, if necessary, take steps to make it better. What is a credit score? It was created by the Fair Isaac Corp. as a way to assess individuals’ personal credit risk and to help lenders decide if it’s wise to loan someone money. The higher the score, the better you look as a credit risk.
What do the numbers mean?
- 800 to 850: exceptional
- 740 to 799: very good
- 670 to 739: good (this is the median of the credit score range)
- 580 to 669: below average
- 579 or less: poor
How is your FICO score calculated? You need to understand this so you can take steps to improve your score. Here are there are five pieces that go into the equation.
1. Payment history: 35 percent
Do you pay your debts on time? This is the most important factor in computing a FICO score.
2. Amount of debt: 30 percent
This is the amount of money you owe in relation to the amount of credit available. That is, someone who has a credit card limit of $5,000 and has reached that level in charges would have a lower credit score than someone who owes $20,000 but has a credit limit of $50,000.
3. Length of credit history: 15 percent
Generally speaking, the longer your credit history, the higher your score.
4. New credit: 10 percent
Be wary of opening several new credit accounts in a short period of time. This could indicate you are a greater risk for lenders and lower your score, something that is particularly true if you have a short credit history.
5. Credit mix: 10 percent
It’s not only credit cards that go into your credit score computation. Other types of credit are included, such as retail accounts, finance company accounts and mortgages.
You probably know that it’s important to review your credit report once each year. This will help prevent errors that could lead to a lower credit score (and higher rates on loans), and can even protect you against identity theft. While some sites offer this service for free, Sunmark goes one step further! Sunmark not only offers you a free credit report, but also the opportunity to review your report with one of our knowledgeable staff. Our trusted consultants can explain each item on your credit report, which can be overwhelming to navigate on your own. In addition, because the representative you meet with has experience reviewing credit reports, they can help identify which loans or credit cards on your report might be able to be consolidated into a lower-rate loan – which can save you money and help you pay down your monthly bills more quickly. Stop in any branch or call us at 866-SUNMARK for a free review of credit with our team.