Money & Career
Everything You Need to Know About Your Credit Score
5/1/2019 1:00:00 PM

Credit Score


Ah, the credit score – that little three-digit number that influences so much:  interest rates, insurance prices and possibly where you live. There are many ways to improve or impair your credit score, but knowing the ins and outs of it can help you get (and keep) the score you want.


Your credit score is basically a numerical indication of your ability to pay back a loan. The credit score, or FICO score, is determined by FICO, an analytics company. The number is this company's rating of your probability of paying off debt. It ranges from 300 to 850; exceptional credit has a score of 800-850, very good is 740-799, good, 670-739, fair, 580 to 669 and very poor is 300-579.


Five factors determine your credit score. Most of the score, 35%, is based on your payment history. About 30% depends on credit utilization; this is the amount of revolving debt (credit cards and lines of credit) owed compared to your total available credit. The length of time you've had credit impacts 15%; inquiries and new accounts affect 10%. Your credit mix – i.e. evolving debt (credit cards) and installment debt (loans) – accounts for 10%.


Your credit score is important because many lenders look at this as they ponder whether to loan you money or do business with you. Caleb Waldmeier, Assistant Vice President and Commercial Loan Officer at Merchants & Farmers Bank, says credit scores are "an indicator of risk," but a potential borrower's entire portfolio makes the difference between approval or denial. "We look at income, credit, equity or collateral position, among other factors that might be specific to the type of credit the individual is requesting," said Waldmeier. "While the credit score is important, it is not the only thing we must consider. A [potential] borrower can have a great credit score, but if they are unable to afford the monthly note, then it [the loan application] is likely to be declined."


To enhance your credit portfolio, you must first know your credit score. So, how do you find it? A safe way is to buy 

it. You can get all your credit reports and score for between $20 and $40 from one of the three credit bureaus: Experian, TransUnion and Equifax. Another way is to use a credit card that includes your credit score on your monthly statement, like Discover. A popular way is to check credit scores for free on websites, like Credit Karma, Credit Sesame and Quizzle. However, on these sites, you don't get your FICO score; you get your Vantage score. Vantage is a different credit-scoring model that was developed by the three credit bureaus. It weighs six factors, not five, like FICO. The Vantage score and FICO score are two totally different numbers. The FICO score is the most widely-used by lenders. 


Once you know your score, Waldmeier says "monitoring your credit" is the best way to improve or maintain it. (You get one free credit report from each of the credit bureaus annually.) "With the rise in identity theft these days, one fraudulent account can lower your score and impact your ability to borrow," said Waldmeier. Other tips include paying bills before the due date, not maxing out your credit cards and varying the kinds of credit you have:  loans and credit cards. 


Taking the necessary steps to manage your credit score is a balancing act that seemingly never ends. It takes research and some know-how. True, it might not happen overnight, but with a little work and a lot of money management, you could have exceptional credit in "no time."


Posted by: Gena Latrell | Submit comment | Tell a friend

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