Understanding Your Credit Score

Without a good “credit score,” obtaining any type of financing is almost impossible in this market environment. But what is a “credit score” and what makes up the score?
 
Often called your FICO score, your credit score is a three digit number that is used to gauge your credit worthiness by financial institutions. Whether you are getting a mortgage, auto loan, or a credit card, your FICO score is important. The term FICO comes from the company that began the calculation of credit scores – the Fair Isaac Corporation. Your credit score can range from 300 to 850. When obtaining credit was easier, it was assumed that those who had a credit score above 700 were the cream of the crop. Now, in more difficult times, a credit score above 760 is needed to obtain the most favorable terms and conditions on a loan.
 
According to the Fair Isaac Corporation, a person’s credit score is made up of five components:

  •  35% reflects payment history on previous debt, i.e. do you pay your bills on time?
  • 30% reflects the amount of your total debt outstanding. The more debt you carry, the lower your score.
  • 15% reflects the length of your credit history. If you have a long history of paying your debts timely, the higher your credit score will be.
  • 10% reflects the new credit you have obtained. If you have opened a lot of new credit lines, your score will decrease.
  • 10% reflects the “type” of credit you use. If all your credit is unsecured, such as for credit cards, it will negatively impact your credit score.

You cannot obtain your FICO score without paying a fee. However, what is reported on your credit “report” is what determines your credit “score” – and you are entitled to see your credit “report” once a year at no cost from each of the three credit reporting agencies. To obtain your free credit “report,” simply go to www.annualcreditreport.com. In addition, to learn more about your credit “score”, you may visit www.myfico.com. NOTE: Please be aware that obtaining your “free” credit “score” at www.myfico.com is not really free!!! 

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
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