What's the Score with Your Credit Score? – Part One

If you’re wondering why you can’t get that much-needed loan, it’s probably because someone knows the real issues that come in your credit score.

In this first of two parts, find out how credit scores affect major financial transactions.

In today’s challenging economy, credit scores have become important to one’s financial stability. They are the hottest figures of the day and if you are not in good standing, chances are you are trapped in a situation that spells out nothing but economic trouble.

If you have a high score, you have red-carpet access to all kinds of credit. And if it your score is horrible, you will get a ridiculously high interest rate or no loan at all.

Finding out

When was the last time you checked your credit score? If you have not done it, now is the time to do so. Remember that credit scores are not just about borrowing. Do you need insurance? The underwriter verifies your credit score first before you get a policy. Even employers have to check on your credit scores before hiring you. Lenders are willing to give you what you need, and possibly more when they see you as a good creditor.

How a credit score is calculated

A company called Fair Isaac Corporation is responsible for finding out if you are worthy of credit. It prepares your FICO score, a number ranging from 300 to 850. Your FICO scores are calculated from the different credit data in your credit report. This data can be grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit used (10%).

Fair Isaac gathers a constant flow of data detailing your spending habits through major credit-reporting agencies: Experian, Equifax and Trans Union. These agencies track how many credit cards you have, how much your car or housing loans are, and whether or not you are paying your bills on time. They score these data using the FICO software, which generates your three-digit number. A score above 750 is good, and the best loans go to people with scores above 780.

Click here for the second part of this article.

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