All About Your Credit Score

Knowing your credit score can make a difference between getting that great car you always wanted or settling for that used one down the street. Almost every major purchase made today is based on how good your credit score is. Understanding and possibly fixing your score can save you money in the long run. Interest rates are lower if you have a good score and purchasing big ticket items are also a lot easier.

Credit Basics

Having a good credit score is very important if you ever want to buy a home, car or even a cell phone. Your credit score can tell a business what your credit history is like and if you are a potential risk for them. Credit scores are developed by using complex mathematical formulas that are based on your most current payments, debt and inquiries. Contrary to popular belief, when companies inquire about your credit score for information, it does not count against you. The only time your credit score drops are when you apply for new credit or a loan, which in that case, drops about five points. You can actually check your credit report as often as you like from three different companies. They are Equifax, Experian and TransUnion. Recently a law was passed that allows you to check your credit score and it's pretty easy.You can usually do it online in the privacy of your own home.

What Those Little Numbers Mean

Credit scores usually range from 350 to 850, 350 being the worst and 850 being perfect. It's almost impossible to get an 850, though. Most scores ranging in the 650 and higher range are considered "good." If your credit score is good, then banks or companies feel that you are safe and will offer you great deals with a lower percentage rate. The lower your score, the more you'll pay in interest. So be mindful of what you do and always try to pay your bills on time. Your score is broken down in percentages. Thirty-five percent of your score is based on your payment history, such as if you paid your bills on time or if you filed for bankruptcy. Thirty percent is based on your outstanding debt, including how many credit cards do you have and how much you owe. Fifteen percent is based on how long you've had credit. Ten percent is based on how many inquiries were made on your credit. The last ten percent is based on the type of credit you have, such as the number of loans and what type of credit is available to you.

Knowing your credit score and understanding it can make a big difference in your life and pocketbook. Be smart about your credit and make smart choices. It may be difficult at times, but it's definitely worth the trouble.