Introduction to credit scores

It seems like everyone is talking about credit scores these days. Here’s a quick rundown on what you need to know about credit scoring and your credit rating.

A credit score is a number between 300-850; the higher the score the better. Every person who has a credit history has one of these numbers associated with them to help potential lenders assess the risk involved in lending that person money. Generally speaking, a person with a higher credit score is more likely to be approved for a new credit account and is also more likely to receive lower interest rates on these loans, credit lines, etc.

According to myFico.com, credit scores are calculated based on a person’s rating in five general categories:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Types of credit used – 10%

While these above percentages are a good reference, they may not always translate exactly in all cases. That said, it is in a borrower’s best interest to be aware of how he/she fares in each of the above categories.

Be in tune with your credit report and look out for any potential inaccuracies that may negatively affect your credit score. If you stay on top of your credit score, you could benefit greatly the next time you apply for a new credit account.

Recommended reading: Tips to maintain a strong credit score