This is the first in a series of articles concerning Credit Scores/Credit Score Myths/Credit Tips for Consumers. The first article deals with defining how credit scores are created and what credit scores means, to you, the consumer.
Let’s start with a simple question and see if we can come up with a simple answer. The question is: What is my credit score?
It turns out, that the answer is not as easy as one would expect. In fact, it turns out that you have more than one credit score and probably have many different credit scores.
Let’s explore the most commonly known credit scores, the FICO Credit Score. The FICO credit score basically consists of 5 components:
- Payment History
- Credit History
- Amounts Owed
- Types of Credit
- New Credit
Payment History consists of such factors as timely payment of bills; if you were late on payments, just how late were you; and, if you were late on payment of bills, how often did that occur.
Credit History consists primarily of how long you have had each account.
Amounts Owed includes the amount of debt on each account. However, it also includes an analysis of how much of your credit limit has been used.
Types of Credit simply defines the kind of credit you have.
New Credit asks how many new accounts you have. In addition, it takes into account how many queries have been made in your name.
OK, so that seems pretty clear, right?
Wrong. In fact, there are many credit scores in addition to the FICO score. The FICO score runs from a low score of 350 to a high score of 850. However, the FICO score varies depending upon which of the 3 credit bureas issues the score and which lender requested the score. In other words, the score that you ordered/paid for, may well differ from the score delivered to a lender where you are attempting to obtain a mortgage, car loan or bank loan.
In fact, each credit bureau, Equifax, Transunion and Experian have their own credit score formulas. These forumas are not shared with the public.
Confused? Don’t blame yourself. The next series of articles will help to explain and answer important questions about credit scores, such as:
- Late Payments? How do they affect my credit scores and what can I do about them?
- Do I need a score of 800 for good credit?
- How do reward programs affect my credit?
- How many years does credit information remain on my credit report?
- Should I pay off my credit cards in full each month?
- My credit score is good. Therefore, am I in good financial condition?
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