In our January/February issue, we briefly discussed credit reports. Here, we take an inside look at credit scores with some interesting facts and details.
Five Credit Score Elements Regardless of the credit bureau, there are five basic elements that are taken into account to calculate your credit score. A look at these building blocks can offer you some tips to improve your credit score:
Payment history. Make sure you're paying your bills on time. If you've missed payments in the past, do your best to get current.
Amounts owed. Keep your outstanding debt as low as you can. Remember, it's better to pay off debt than to move it around.
Length of credit history. The longer you can show a responsible credit history, the better it is for your credit score. If you've just started out, try not to open too many credit accounts too quickly.
New credit. Credit bureaus distinguish between a search for a single loan and a search for too many new credit accounts. So, if you're shopping for credit, make sure you do it within a particular amount of time. The golden rule for new credit? Get it only if you need it.
Types of credit used. From credit cards and retail accounts to installment loans and mortgages, we use different types of credit. It doesn't really matter what types of credit you have in your report, what's important is that you're managing them responsibly.
Not All Credit Requests Count A common misunderstanding is that all credit requests made on your account have a negative impact on your score. In fact, there are many inquiries that do not affect your credit score:
Consumer initiated inquiries are when you make a voluntary request of your credit report.
Promotional inquiries include requests by lenders who want to make you pre-approved credit offers.
Administrative inquiries are requests made by lenders who already have an account with you and wish to review your account.
Employer inquiries are from prospective employers and also do not affect your score.
Is Your Credit In Good Shape? For more information on credit scores and reports, visit the Fair, Isaac and Company consumer website. If it's been some time since you last checked your credit score, visit any of the three credit bureaus for more information: EquiFax, Experian, or TransUnion.
