Credit Score

Well the answer is quite simple - a three digit number that determines your creditworthiness, or in other words the odds of you repaying your debts. Computed using statistical analysis and based mostly off your credit report, the number is key in obtaining the best interest rates, higher credit limits and greater access to credit. The higher the number, the better. Banks, credit card companies, landlords and just about any company with interest in offering you a product or service on credit terms probably consults your credit score. While not the whole picture lenders look at when you apply for a loan, credit card or the like, your credit score makes up a big piece of the puzzle.

As so many groups now consult a credit score, making sure your credit report is error free is even more crucial. Under US Federal Law, you can obtain a free copy of your credit report once every twelve months from each of the three nationwide consumer reporting agencies. And if managing your credit report is not enough, did you know that there are many different ways of computing your credit score? The two main credit score systems in use today are FICO and VantageScore, FICO the dominant one on market.

Unlike a credit report, there really is no easy way to get a Free Credit Score. Websites may offer you a free score or free report but there are most likely strings attached involving some sort of subscription to a credit monitoring service. One strategy to take if you're willing, is to sign up for a free trial, get your credit score and then cancel before they charge your credit card.

Otherwise you can buy your score when you request a free credit report from the federal government's approved site Annualcreditreport.com for about $5 to 11. The three major consumer reporting agencies - Experian, Equifax or TransUnion also offer free credit reports and credit scores when you sign up for a paid credit monitoring service. If you order just the credit score, be sure to verify what type of score it is. Experian offers a credit score using VantageScore while the other two agencies may offer FICO or VantageScore. There are plenty of sites on the web that are more than willing to give you your score for a price even if the price may not be obvious.

Another strategy (untested) is when you talk to your bank about opening a new credit card account or loan and you are approved or at some point in the process, ask if they could tell you your credit score for free since they most likely have already requested it.

Under FICO, a score ranges from 300 to 850 with 850 being the best score possible. A FICO score under 640 would most likely have you in the subprime range for taking out loans while scores above 750 will most likely offer the best loan rates on new credit. 

FICO is computed using information in your credit report, which is maintained by the three main consumer reporting agencies - Equifax, Experian and TransUnion. As the information collected varies from one credit agency to another your credit score can vary even though the FICO Score formula remains the same.

The general breakdown of FICO follows these percents:

• 35% — Payment History – Payments on your account, whether on time or late. Bankruptcies and other public record information.
  
• 30% — Credit Utilization - Account balances. The ratio between an account balance to its credit limit.
• 15% — Length of Credit History – Age of your accounts
  
• 10% — Credit Type - Mortgages, Loans, Credit Cards, Installment or revolving credit, etc.
• 10% — New Credit - Recent inquiries into applying for credit

The exact detailed formula is proprietary and undisclosed by FICO. Only a general outline can be found, though there are many ways to boost your score.

Created by the three consumer reporting agencies - Experian, Equifax and TransUnion - in 2006, it competes with the FICO score. Much like FICO, it is also composed of information from your credit report. VantageScore uses a range of 501 - 900 while also adding a letter grade:

• A: 901–990
• B: 801–900
• C: 701–800
• D: 601–700
• F: 501–600

Like FICO they also give at percentage breakdown but with slightly different categories:

• 32% - Payment History - Repayments whether on time or late, delinquiencies
  
• 23% - Credit Utilization - Percentage of credit used
  
• 15% - Credit Balances - Balances reported recently (current and delinquent)
  
• 13% - Depth of Credit - Credit Length and type(credit card, mortgage, etc.)
  
• 10% - Recent Credit - Recent number of opened accounts and inquiries
• 7% - Available Credit - Amount of unused credit

The exact formula for VantageScore is also hidden, but on Experian's website you can see more information on VantageScore and experiment with various credit circumstances to see how they can affect the score. Experian's credit score offerings focus on VantageScore over FICO.

Whether FICO or VantageScore, there are generally recognized tips on boosting your score. Most are common sense from just looking at how your score is computed. But for convenience I listed some tricks here.

• Request your free credit report from AnnualCreditReport.com and make sure the information on record is accurate. Dispute any inaccuracies. More information about credit reports can be found in Credit Report.
  
• Pay on time. Late payments penalize your credit score.
• Add different types of accounts - revolving credit, installments, the more types the better
  
• Delinquencies and accounts turned over to collection hurt your credit score even if paid in full
• Contrary to common sense, closing an account like a credit card can actually penalize your score (you lose any good history of that account in your score calculation even though it remains on your report)
• A low debt to credit ratio boosts your score and a high ratio lowers it - raising credit limits or keeping lower balances will boost your score
• Credit repair companies can do little to actually boost your score and will cost more than what service they can provide