Credit Score Chart: The Key to Understanding Credit Scores

Fair, Isaac & Company compiles the information in the credit reports and calculates a score to determine your creditworthiness. These scores are known as your credit rating. The majority of consumer credit companies and mortgage lenders use the FICO scores. You can visit www.myfico.com to get your FICO score. Sometimes those scores will be provided on the credit report.

The higher the score, the more money you will save on consumer loans and mortgages. Banks offer better interest rates and payment terms to consumers with higher scores. The lower your credit score, the higher interest rates you will be charged on a loan. The difference between a high score and low score can mean thousands of dollars in a year’s payments. The score also determines whether you will even be offered a loan.

FICO scores are calculated according to the following information:



35% - Payment history. Whether you pay your bills on time or late, whether you have a bankruptcy or bill in collection.
30% - Total Debt. Your debt to income ratio is taken into account. If it’s too high, the score is lower.
15% - Length of your credit history. If your accounts are all very new, it’s a minus.
10% - New inquiries. If you have many recent new inquiries, your score will go down.
10% - Types of Accounts you have. If you borrow from finance companies or pay day advance companies, the score goes down.

Credit reports are becoming a critical part of our daily lives. They are not just tools to acquire consumer credit any more, and it is likely they’ll become even more important in the future.

That is why we should review them on an annual basis, and make sure they provide as positive view of us as possible.

How to Raise Your Credit Score Myths: Fix My Credit Report Kits

Myth: I can buy a kit to clean up my credit, and all my past problems will be washed away.

Truth: Only inaccuracies can be cleaned from credit reports, so these kits are scams.

Nothing can be taken off your report unless the item is inaccurate. The Federal Fair Credit Reporting Act dictates how consumers and creditors interact with the credit bureaus. Bad credit drops off your credit report after seven years. If you have a Chapter 7 bankruptcy, it will stay there for ten years.

If you have an error to be corrected, take care of that yourself. Accurate bad credit stays on your report unless you lie. But lying for the purpose of getting money is a fraud, and you should NOT do it.

Credit-repair companies are mostly scams. The Federal Trade Commission regularly closes down these fraudulent operations. Some repair kits will tell you to dispute all bad credit and demand to have it removed, even if the item is reported accurately. Some kits even suggest you get a second identity and a new Social Security number. Do not fall a victim to such scams!

If you get a new identity, you get a brand-new credit report and lenders will not be able to find out about your past bad record. However, this is a fraud, and if you do this, you may go to jail.
Work on cleaning your credit report and improving your relationship with money. Over time your credit report will clean itself.

Credit Score Scale: What are credit score ranges?

Just about every major financial decision you make is linked to your credit score.

FICO score is a three digit number that determines the interest rate you will pay on your credit cards, car loans, and home mortgage, as well as whether you will be able to get approved for apartment rental or cell phone.

FICO stands for Fair Isaac Corporation, the company that invented the formula that rules the world of consumer credit.

If you have a high score, it means you have a great reputation with the business world and you’ll get the best deals on credit cards, loans, mortgages, etc. A lower score translates into paying higher interest rates and less advantageous payment terms on cards and loans. Your credit history can even affect your auto insurance premiums.

Your FICO score is based on your sending and bill paying habits, and your overall debt load. Everybody you do business with – lenders, credit card companies, phone operators – regularly file reports on your financial activity to one of the three major credit bureaus. Like a big brother – the credit bureaus know what you have spent, what you owe, and whether or not you pay your bills on time. From all that data, the credit bureaus calculate your credit score using a formula developed by Fair Isaac.

Credit score can range from 300 to 850. Your goal should be to get your score into 720-850 range. The good news is that a buyer with a FICO score of 722 can get just as good an interest rate on an auto loan as someone with 848. That’s true for every credit score range.

The credit score ranges are as follows:

• 720 and above is Prime Credit
• 680 to 719 is Good Credit
• 640 to 679 is Marginal Credit
• 600 to 639 is Sub-Prime Credit
• 580 to 599 is Poor Credit
• 525 to 579 is Bad Credit
• 480 to 524 is Very Bad Credit

Credit Score Agencies: Where to get your FREE credit report

There are three primary credit report agencies in the US today. People who put the information into the computers aren’t perfect and mistakes can happen when entering the information into your file.

Equifax Credit Information Services, Inc. www.Equifax.com
Experian: www.experian.com
Trans Union: www.transunion.com

The Federal Trade Commission mandated by law that everybody is allowed free access to these reports annually. The place to get it is Annual Credit Report Request Service. AnnualCreditReport.com is a centralized service for consumers to request free annual credit reports. It was created by the three nationwide consumer credit reporting companies - Equifax, Experian and TransUnion.

AnnualCreditReport.com provides consumers with the secure means to request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies in accordance with the Fair and Accurate Credit Transactions Act (FACT Act).

All these sites provide a wealth of information and resources to help keep your report accurate.

The websites explain how to read and analyze the reports and how to contact them, if they contain information that you want to dispute. The credit reports show which bills you pay on time or don’t pay on time. They show your employer, any bankruptcy within the last ten years, and your child support agency. They list all accounts that you have had open for the last seven years and the dates the accounts were opened and closed. Every time you are denied credit, this information gets on your report. They list high and low balances on consumer accounts, interest rates on these accounts, and how much your payments are.

Once you get the reports, examine all the reported information. The first thing to look at is any negative items that are over seven years old. Except for a bankruptcy, which stays in the file for ten years from the date of discharge, other things can generally be challenged and removed.

There may be closed accounts or accounts showing late payments when in fact, they never were. There could be debts of your former spouse, accounts which aren’t yours or civil judgments that aren’t yours.

Remember accounts showing inaccurate information usually simply means information was entered wrong into the computer.

Another thing to look for is recent requests to open accounts or credit inquiries that were not initiated by you. This could be a sign of attempted identity theft. It’s estimated that up to 50% of the files have at least one error.

The Fair Credit Reporting Act gives consumers the right to review and challenge the items in their reports. Challenge every item you don’t agree with. When challenging items in the report, it’s best to do it in writing, via registered or certified mail, and keep a copy of the letter. Credit agencies are required by law to prove the accuracy of the information within 30 days. If they are unable to do so, the item must be removed.

The agencies will help you in correcting any errors and making your file as accurate s possible. They are not involved in decisions to give credit or deny credit, because it’s not their role to evaluate the data. They just collect and report information to current and prospective creditors, as requested.

4 Ways to Improve Your Credit Rating and save THOUSANDS Every Year

Credit score is a three digit number that has an impact on just about every major financial decision you make. Every time you apply for a loan or a line of credit. the lender will check your credit score rating to decide what interest rates and terms to offer you on your credit card, auto loan, mortgage, and whether you should get approved for apartment rental or a cell phone.

There are three primary credit report bureaus in the US today: Equifax Credit Information Services, Inc., Experian, and Trans Union. They know almost everything about your credit history, including how much you owe, what accounts you have, what is your credit limit, and whether or not you pay your bills on time. Based on that information, the credit bureaus calculate your credit score, also called FICO score, using a formula developed by Fair Isaac Company.

While a credit score can range from 300 to 850, your goal should be to get your score as close to the 720-850 range as possible.

This will mean thousands of dollars saved on every major financial transaction every year!

Just learning what goes into your report will help you figure out how to improve it - read about this in my post about credit score chart. Credit Score Chart and Credit Score Scale: What are credit score ranges?

Step 1: Get a copy of your credit report (you can get it for free from annualcreditreport.com) and examine the data for errors and negative items.

If there are any negative items that are over seven years old, they can be disputed and most likely removed (except for a bankruptcy, which stays in the file for ten years from the date of discharge). There may be accounts showing missed payments when in fact, they never were. There could be debts of your former spouse, accounts which aren’t yours or civil judgments that aren’t yours. It is estimated that over 60% of credit reports contain some inaccuracies or errors.

Step 2: Dispute all negative items on your credit report by writing a letter and sending it to the credit bureau or the creditor via registered or certified mail.

The Fair Credit Reporting Act gives borrowers the right to review and dispute the items on their credit reports. Credit agencies are required by law to prove the accuracy of the information within 30 days. If they are not able to provide the proof, the item must be deleted. During that time that information cannot be used in the calculation of your score.

Step 3: To reduce your debt-to-credit ratio, you can try to increase your credit limits on your existing credit cards, or open some new accounts.

If you only use 10% to 30% of the credit you have available on a high limit account, your credit score will rise significantly. However, this will only work if you keep the balances on these accounts low. Also, you should not make too many inquiries for credit at the same time, as this may lower your score.

Step 4: Change your spending habits and improve your money management skills, and do not rely on someone else to fix your problems for you.

Especially be careful and do not trust the claims made by various credit repair companies and their ads. Your bad credit history cannot be wiped out from your file overnight. And do not even consider for a moment changing your identity in order to start with a clean record, as some of these companies may propose. Falsifying your financial and personal records is a federal offense, for which you can be convicted and sent to jail.