The following is a guest blog post:
Do you know what’s your current credit score? Do you even have a credit score?
You may be surprised to learn that according to the Consumer Financial Protection Bureau in 26 million people in the USA alone do not have a credit report, and another 19 million do not have recent information or even enough information available to have a credit score.
In fact it is estimated that 4 out of 5 individuals in the 18-19 year old range are affected by this problem, and 1 out of 3 individuals in the 20-24 year old range have this same issue.
What is a credit score?
Your credit score is a three digit number and it is a good indicator of whether you will become delinquent on any credit obligations that you owe.
Your score determines your risk as a borrower, and it ranges from 300 up to 850.
The higher your credit score is the less risk you pose as a borrower, and the lower your interest rate can be on any credit that you qualify for.
The most common type of credit score is FICO, and it is calculated by using information provided by the 3 main credit reporting bureaus.
These agencies are Experian, Equifax, and Trans Union.
A poor credit score could cost you in higher interest and even car insurance rates in some areas, or even keep you from getting a job or renting a place to live.
How is your credit score calculated?
There are 5 weighted components used to calculate your credit score, and each of these components may have a different impact on your current credit score.
Your Payment History- This factor is 35% of your credit score, and it simply looks at whether you pay your debts in a timely manner.
Your Current Outstanding Debt- This is 30% of your credit score, and it evaluates how much debt you have compared to your available credit. Experts recommend using 10% or less of the available credit that you have in order to get the best credit score possible. If you have $1,000 limit on a credit card you should only charge $100
Your Credit History- This accounts for 15% of your credit score, and it looks at how long you have had a credit history. The ages of the oldest and most recent accounts are factored in, and so is the average age of all the accounts that you have. The length of time since certain accounts have been used is also taken into consideration with this component.
Any New Credit Applications- Every time you apply for new credit this is reflected in your credit reports, and this component makes up 10% of your credit score. The more new credit applications you have the more this can lower your credit score.
Current Types of Credit- This weighted component counts for 10% of your credit score, and it looks at the various types of loans and credit that you have. The greater the mix of credit types that you have the higher your credit score will be. If you have a mortgage, an auto loan, one or more credit cards, and retail accounts you will have a higher credit score than if you only have one or two types of credit. For more credit building tips visit this page.
What about you? Do you know what your credit score is? If you don’t then you should find out!
Learn more about how credit inquiries can impact your credit score.