subject: Figuring Your Credit Score [print this page] Figuring Your Credit Score Figuring Your Credit Score
You may want to know how your credit score is calculated. The process is long and each of the three major companies in the United States will participate in reporting credit scores and histories with a different method. Because of this, your credit score is going to be a little bit different from one to the next. There are some factors that you can take into consideration if you want to estimate your credit score on your own.
If you have never owned a credit card or had any type of bill in your name, or if you haven't borrowed money of any kind, your credit score is going to be zero. Even though this is not considered to be bad credit, it is just as hard to get a loan with no credit as it is with bad credit. There are some companies that may be willing to take a chance on someone with no credit, but it is much better to build up your credit slowly by having cards in your name and living a comfortable life within your means of income.
Your credit history is going to make up about 35% of your total credit score and it is very important. The bills that are not paid, or if you have debts you have defaulted on, you will hurt your credit score for 7 to 10 years before they are all erased. All of the bad choices you make today can hurt your credit in the future. If you are repaying these debts now, chances are they will still show up on your credit report as bills that were paid late.
15% of your credit score is going to be the length of your credit history. It is a good idea to start building credit as soon as you can. Your score will improve as time goes on as long as you are maintaining a bank account. Information like length of employment and residency can be classified in this section, too, so if you have a stable life, you will have a better score than someone else who moves around all the time.
Then 30% of your score will depend on what you currently owe to creditors. Even if you are not late paying your bills, if you have many loans out at one time, you may be denied more credit. Therefore, it is important to only take out loans you really need and to repay them on time or early if you can.
If you pay off your loans early, you will not only see your credit score rise, you will also save money on interest. These early payoffs will show up on your credit history and new loans will be given to you at lower interest rates.
10% of your credit score is going to be based on new accounts. They will look at how many different types of loans you have applied for and how many you have open now. Opening and closing accounts too fast is not recommended.
Use your common sense. Knowing your credit score and how it is calculated is going to help you find mistakes. This may help you in the future. You are able to get a free copy of your credit report annually so you should review this, as well as get your credit score, to be sure that you are being treated fairly.
