Know Your Credit Rating

Your Credit Score: The Key to Your Financial ID

It seems like just about everything these days depends on your credit score. Whether you have bad credit or good credit, your credit history can have a big impact on how much you money you end up paying.

Most people know that your credit score can affect your ability to secure a loan or open a credit card. But did you know that your credit history also can come into play even when you are shopping for insurance? Not knowing the importance of a good credit score can cost you thousands of dollars if you are not careful.

How Your Credit Score is Determined

Your credit score is essentially a three-digit number used to determine the likelihood of your ability to pay back money you have borrowed. These scores can range from 350 (extremely high risk) to 850 (extremely low risk). Most people tend to fall within the 650-to-799 range, with the larger proportion having scores between 750 and 799.

There are three credit bureaus that issue credit scores: Equifax, TransUnion and Experian. The three organizations rely on different evaluation systems based to determine one's credit score. While one's credit score could vary slightly from bureau to bureau, it rarely differs significantly.

When calculating one's credit score, the bureaus do consider same five factors:

• Previous Credit Performance: What does your payment history look like? Did you make your loan and credit card payments on time or were your payments often late? Do you have any collections on your record or have you filed for bankruptcy? All of these factors will impact how your previous credit performance is viewed.
• Current Level of Indebtedness: This component of your credit history looks at how much debt you currently carry as well as how much potential debt you could accumulate (i.e. how many credit cards you currently have).
• Length of Credit History: Having a long and good credit history can help increase your credit score. In contrast, having a fairly new credit or allowing a significant amount of time to pass without using credit can bring your score down.
• Types of Credit Available: There are "good" types of credit, like school loans and mortgages, that can help boost your credit score or at the very least will not hurt it. However, certain types of credit, such as credit cards, or revolving credit, could negatively impact your score.
• Pursuit of New Credit: This factor takes into consideration how many forms of credit you've opened recently. There are certain windows that allow for a few "hits" on your credit, like when you're buying a new car - visiting multiple dealerships can result in multiple credit checks. However, if you have applied for several credit cards or have multiple newly opened accounts, you credit score will take a dive.

Additionally, some of these factors have a greater impact on your credit score than others. While the three credit bureaus rely on different systems to generate your credit score, in general, you can expect the above factors to be weighted as follows:

• Previous Credit Performance - 35 percent
• Current Level of Indebtedness - 30 percent
• Length of Credit History - 15 percent
• Types of Credit Available - 15 percent
• Pursuit of New Credit - 5 percent

If you have a bad credit score, we have provided tips to help you fix your bad credit score to better your future..