Question: How is a credit score calculated?
- The highest percentage, 35%, of your score is determined by payment history. Missing payments or frequently paying bills late will drastically lower your score. The good news is, FICO favors recent activity, so you can improve your score by making timely payments or working out payments plans that suit your budget.
- 30% of the FICO score is based on how much money you owe versus how much credit is available to you. Someone close to maxing out his or her credit cards is seen as a higher risk of default.
- 15% of your credit score is based on the length of your credit history. The longer your credit history the better.
- The type of credit you use determines 10% of the FICO score. Having many different types of credit, including mortgages, credit cards, car loans, revolving and installment credit, will generate a higher score.
- 10% of your FICO score includes searches for credit. Applying for many different types of credit over a short period of time can lower your score. Rate shopping for one specific type of loan should not have much impact on your score.
Question: Do I have a right to know what’s in my report?
Answer: Yes, but you have to ask for the information. The reporting companies (Experian, Equifax or TransUnion) must tell you everything in your report and give you a list of everyone who has requested your report within the last year. I encourage everyone to request their one free copy of their credit report once every 12 months. There are many services that offer free credit reports, but not all are what they are cracked up to be even if they have clever commercials.
Question: How do I order a free credit report?
Answer: The three reporting companies use one website, one toll free number and one mailing address.
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348
Important: annualcreditreport.com is the only authorized online source for your free annual credit report from the three reporting companies. Also, you will never be contacted by them requesting personal information.
Be warned: There are ads on the internet, TV, radio and newspaper for companies and services that promise to erase accurate negative information in exchange for a fee. These scam artists not only don’t deliver, they can’t. Only a plan, time and budget will improve a credit score.