What does your Credit Score Mean?

Your credit score is a snapshot of your credit risk at a particular time and ranges from about 300-850, the higher the score the better.  Keep in mind it varies from lender to lender and depends on which credit report is referenced.  No score says whether you will be a 'good' or 'bad' customer.  Each lender has his own strategy and there is no single 'cut-off score' used by all lenders; there are many additional factors to consider.  Also, as new information is added to your credit report your score will change.

To get a better understanding of your score, become familiar with the following five main categories listed below with their general percentage of importance.  Credit scores take into account all of these five categories, including positive and negative information.

Payment History - 35% - Do you pay your bills on time or are you late?  Basically the score takes into account your payment information as reported in your credit report.  If you are late, it considers how late your payment was, how much was owed, how recently the late payment(s) occurred and how many there are.  The score also takes into account adverse public records (bankruptcy, judgments, liens, collection activity, wage attachment, etc.).

Amounts Owed - 30%  - Do you owe a lot to creditors? Are you overextended and nearing your credit limits? Your score considers the amount owed on all accounts, on different accounts such as credit cards and installment loans, and balances.

Length of Credit History - 15% - How long have you been using credit?  In general, a longer credit history will increase your credit score.  If you have been using credit for a short time, don't open a lot of new accounts too quickly. New accounts will lower your average account age, plus too many can look risky.

New Credit - 10% - Have you applied for a lot of new credit recently?  How many new accounts do you have?  How many requests for credit have you made, as indicated by inquiries on your credit report?  Inquiries can remain for two years, although FICO only considers inquiries from the last 12 months.

Types of Credit in Use - 10% - Is it a healthy mix?  Your score takes into account what kinds of credit accounts you have, such as retail accounts, installment loans, finance company accounts and mortgage loans.  It is not necessary to have one of each and it is not a good idea to open accounts you don't need.  The credit mix is generally not a key factor in your score, but it will be more important if you do not have a lot of other information to be used.