Credit score 101

Do you really understand a credit score?

Most people have a basic understanding of credit. They know that  failing to make a payment will cause your score to go down, but there are a number of complexities that trip up the average consumer. For your score is not just tabulated on your ability to pay. It’s also a number of other issues that make it happen. If you pay your debts on time, don’t carry too much debt on any one card, don’t close older accounts unless absolutely necessary and only apply for new credit when you have to you will generally be in good shape. However, it is important to keep yourself informed so you can maintain a credit score that accurately reflects your consumer status. Keeping yourself informed on your score is usually limited to about one free report a year, as federally mandated. If you want to see more than that you have to pay. 

Who is looking at your credit score?


Lenders use your credit report in order to judge your reliability as a loan candidate. They want to know if you can simply pay your bills. Plus, your credit report indicates your ability to handle debt responsibly and will help banks decide if you are a desirable loan customer. A high credit score can help you lock in low APR rates or secure special deals on loans. What is a higher credit score? 850 and 650 those are better, but anything below a 650 is considered poor to bad. If they do see that your have a bad credit report it may prevent you from securing loans and can damage your ability to buy a car, open a credit card or rent a home. A history of inability to manage your credit successfully will make lenders uncomfortable about trusting you with additional funds in the future.

Remember, you are entitled to a free copy of your credit report once a year, an offer you should take advantage of. When you do receive your credit report, check to ensure the figures are accurate and act quickly to correct any mistakes. This may include any clerical errors, identity theft issues or incorrect information. If your credit score is low, you should begin working on a financial rehabilitation plan, either on your own or with a certified debt counselor, to begin correcting your bad debt habits.

Who makes up your three digit credit score number?

Well in all honesty the companies that create your credit score do so with an algorithm developed by the Fair Issue Corporation (hence its other name of FICO score). Three corporations, called “credit bureaus”, specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion. While, the exact formula used to calculate your credit score is a tightly guarded industry secret, these companies provide general guidelines about financial behavior that can affect your credit score.

They won’t give you the step by step tutorial on how it is created, just be willing to understand that your credit score will suffer with late payments and charge offs.

Consider Your Payment History:

About thirty-five percent of your credit score is made up by your payment history.That is a huge chunk. Remember though it’s not the whole chunk.  Your payment history  late payments, collections, and even bankruptcies and tax liens. Each type of account will stay on your credit report a specified period of time and each type of derogatory will hurt your score differently. Credit Repair Express works to remove accounts that are not 100% accurate OR not 100% verifiable. Our removal rate is around 70%.

What about Debt Ratio?

Your debt ratio is the amount of revolving credit (i.e. credit cards) you owe in relation to the amount of credit you have available. So it’s basically how much money you have versus your debt. Have you every heard a lender talk about your debt to income ratio? For instance, if your credit limit is $10,000 and your current balance is $2,000, your debt ratio would be 20%. While, ideally, you would have your debt ratio at 0%, we usually recommend you are at least at 30% or lower.

How long you have had credit.

Your length of credit is how long you have had credit. At face value, this seems like something you couldn’t really do anything to fix. However, there are ways you can hurt yourself here. If you close out your older cards, even if they have higher interest rates, it will hurt your score. The credit scoring model has no memory or credit cards you close: if you close out that fifteen year old card you will get no credit for it!

Kinds of credit

Types of credit include revolving, installment and mortgage loans. By having different kinds of credit open, you show creditors that you are responsible and able to handle different kinds of responsibilities.

Queries affect your credit score

Inquiries are marked on your credit report when you ask for new credit (i.e. when you apply for a home loan). Inquiries made by yourself or for unsolicited offers do not count against your score, but are shown on your report. It is important to note than when searching for a home you are allowed unlimited inquiries over a 45 day period since it is assumed you are rate shopping.