When you get a loan you need to know your credit score. The Fair Isaac Corporation (FICO) credit scoring system ranges between 300 to 800. This number is used to predict your likelihood of repaying your loan. If you know your credit score and it’s below 620, it’s considered to be in the “Bad Credit” range. The average American's credit score is 682.
Here's a Common Breakdown of FICO Credit Scores:
What Can Affect Your Credit Score?
- 700 to 850 is considered an excellent credit score.
- 680 to 699 is regarded as a good credit score.
- 620 to 679 is thought of as an average credit score.
- 580 to 619 is a low credit score.
- 500 to 579 is regarded as a poor credit score.
- 300 to 499 is considered a bad credit score.
Generally speaking, the higher your score; the better loan options you have. Here are the factors that affect your credit score:
- 35% Payment History
- 30% Current Debts
- 15% Credit History
- 10% Types of Current Credit
- 10% New Credit Applications
There are the three pieces that result in your payment history:
- How late your payments are
- How many payments you have missed
- How long you haven’t missed any payments
If you have not made payments for a certain loan or credit card the main credit bureaus, Experian, TransUnion and Equifax, update that negative mark every 30 days. If you took 2 months to make a payment on that past-due account, your credit report would have a 60 day mark on it. The longer you wait to pay on a debt will reflect on your score negatively. Frequently paying late will also damage your credit score.
The amount of debt you have right now accounts for 30% of your credit score. Credit utilization is the percentage of your available credit that you are using. If you always carry high balances on your credit cards, then your score will suffer. High balances indicate to a lender that you are at a higher risk of default. So, keep your credit card balances low and your credit score will raise.
How long you have had access to credit isn’t the only factor that determines your credit history. Your payment patterns and how often you apply for new credit also has an impact on your credit history. If you’ve had good credit for a long time, but if you miss a few payments or apply for several new loans or credit cards, this will have a negative impact on credit score.
Types of Current Credit
Having the right balance of credit variety accounts for 10% of your credit score. You would want a car loan, a mortgage, and a few credit cards to show you are using your credit responsibly. Like any great recipe, having the right mix is in your best interest.
New Credit Applications
Opening new credit accounts all at once will have a negative impact on 10% of your credit score. Too many accounts could indicate financial trouble if you’re creating credit accounts at the same time. You should only take on additional credit if you absolutely need it.