A credit score is a number that serves as an indicator of the strength of one’s credit. A credit score is generated based off of many financial factors, then analyzed through one of the United States three major credit bureaus which are Experian, TransUnion, and Equifax. Credit scores usually range from 300 to 850, with the different ranges as follows:
Exceptional: from 800-850
Very Good: 740-799
Very Poor: 300-579
66% of Americans have credit scores in the ranges of good to exceptional.
According to the Experian official website, your credit, or FICO (Fair Isaac Corporation) score is broken down by percentages of each factor listed below
35%: Payment history: whether or not the individual pays his/her bills on time
30%: Amount owed: The numerical amount of credit the individual has available (credit limit), compared to how much the individual is using (credit card balance)
15%: Length of credit history: How long the individual has had their oldest and newest accounts opened
10%: Types of credit: The different types of credit the individual uses (i.e. credit cards, loans, etc)
10%: New credit: The number of hard inquiries on the individual's credit
Though those percentages somewhat explain the numerical makeup that contributes to one’s credit score, there are many specific factors that determine the numbers behind said percentages. The main factor is late or missed payments on credit accounts. While consistent, on-time payments can increase ones’ credit score, late or missed car, insurance, bill payments, and more will lead to the decrease of ones’ score. In addition, debt collections, repossessions, bankruptcies, foreclosures, and debt charge-offs also can lead to a decline in ones’ credit score.
If an individual has poor credit, there are many different options to help repair their credit score. For example, becoming an authorized user on a person with good credit’s account, getting a cosigner with good credit to help qualify for a loan or credit account, or opening a joint account with another user who has good credit. Also, secured credit cards allow users with poor credit to open accounts. However, secured credit cards require a deposit that will serve as the credit limit.
Credit scores are the basis for many important decisions in anyone’s life. Credit scores are the determining factor for landlords when considering new tenants, car companies when allowing one to finance a vehicle, and many more factors. So it is best to try to maintain a score in the Good range or better while trying to prepare for the future.