Many people do not realize, when they request their free credit reports, that their credit score and their credit report are two different things. They often become upset when they realize that their credit score is not listed. They become even more frustrated when they attempt to find out what their true credit score is.
Understanding how your credit scores are calculated will help you to avoid that frustration. Credit scores are based on a numbering system called FICO. The method of calculating a FICO score was developed by the Fair Isaac Corporation, hence the name, FICO. The FICO score is broken down into segments which look at different areas of your credit.
How you pay your bills each month is the basis of the FICO system. It looks at whether you pay your bills on time or if you allow any of them to run over into a 60 or 90 day payment period. The score also takes your amount of debt into consideration. Your total number of years of credit history is also looked at. Additional factors in determining your score include the types of credit you have and how often you apply for new credit.
Each of the above factors are allocated a certain percentage weighting in the overall score. These percentages combined make your credit score. An score of 750 or higher is considered above average while a FICO score below 650 is considered a problem. If your number is 650 or lower you will find it difficult to obtain any credit.
Losing even a few points can be greatly affect your credit score, because your credit determination comes from different sources. Even a drop of 10 or 20 points can become a real issue for you. This is why it is so important for you to look at your credit reports each year.
Some things that you need to pay close attention to on your credit reports include:
• Check that bills that you paid on time are not reported as being late
• Make sure that loans that have been paid and discharged are reported as closed
• See if another family member’s credit history is showing up on your report
• Verify that there are no errors in amounts that have been paid on loans
Unfortunately, errors often do appear on credit reports and they certainly can adversely affect your credit scores. Carefully checking your credit report each year will enable you to keep on top of the situation and make sure mistakes are corrected. Then when you do decide to apply for a loan or mortgage your chances of being approved will be that much higher.