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All about Your Credit Score

June 20th, 2013 at 10:18 am

Your credit score is a three digit number that is used by businesses to determine if you are worthy of risk. Do not take this these three little numbers lightly. Although small, they have a lot a power and can affect your life negatively or positively. If you don’t think so, consider this; When you apply for credit, it is those three numbers that will determine if you get approved or denied. The same holds true when you apply for an apartment, insurance and a job.

Theresa    San Antonio bankruptcy attorneyYour credit score is determined by a mathematical formula and although there are tons of these formula models around, most companies use the FICO scoring model, which gauge between 300-850. The higher your score is the better risk you are–likewise the lower the score the higher the risk. Until 2009, each person had three FICO scores because there were three major credit reporting agencies using the FICO model, EquiFax, TransUnion and Experian. Experian is no longer under agreement with FICO. Although there are five categories that make up a credit score, each person’s score is determined based on their circumstances individually. That means that a new person with no credit history is not weighted the same as someone with an established credit history. Instead, the newbie is grouped and weighed against those in that same circumstance—tens of millions to be exact.

There are five categories used to make up a credit score. Payment history and debt owed are two categories that weighed most heavily.

  • How you make your payments and any delinquent accounts goes into the Payment history category and is 35% of the pie.
  • Outstanding Balances (30%)—how much you owe is a factor that is considered. For instance, if you have several open accounts with a large outstanding balance spread between them this might be viewed as a higher risk.
  • How long have you had credit (15%)—how long have you had your open lines of credit and their activity.
  • Types of Accounts (10%)—revolving and installments
  • New lines of Credit (10%)—how many new lines of credit and/or attempts to get new lines of credit is also weighed. This includes hits to your credit report from utility companies.

By law, each person is entitled to a free credit report once a year from each reporting agency. If you have questions about how bankruptcy can affect your credit or how to get your credit back on track, call your San Antonio bankruptcy attorney today.

 

Image courtesy of Renjith Krishnan/freedigitalphotos.net

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