Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles.
This information from lenders is used to calculate your FICO® (Fair Isaac and Company) score. FICO® scores range from 300 to 850, with a higher number indicating a better credit score. Lenders use this credit score to evaluate your creditworthiness, or your ability to repay a loan. A higher score means you are a lower credit risk so companies will charge you less to borrow money. You can obtain your score from the credit bureaus, generally for a small fee. Learn more about credit scores at www.myfico.com.
How can I raise my credit score?
Here are just a few suggestions that may help you raise your score:
- Inspect your credit report and correct any errors.
- Own credit cards and manage them responsibly.
- Pay on time. Late payments hurt your score more than anything, except not paying at all, or bankruptcy.
- Pay more than the minimum due each month.
- Apply for credit only when you need it. New accounts could lower your score by lowering the average age of all your accounts, and even closed accounts may be factored into your score.
Use the link below to the Federal Trade Commission's website to learn more.
See also the Federal Reserve's website about credit reports and credit scores:
http://www.federalreserve.gov/creditreports/#credit_score