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Credit Scores

Importance of Credit Scores

Creditors are making greater use of credit scores to help them make decisions about consumers who apply for new or additional credit.  For example, nearly all mortgages are now underwritten using credit scores.  Creditors are also using credit scores to evaluate their existing account holders.  Depending on what your score is, your credit limit could be increased or reduced, the rate of interest you are paying could be raised, and other terms of credit could be affected.  Insurance companies, landlords and even cell phone companies  are also using credit scores to make decisions about consumers.

What is a Credit Score

Your credit score is a numeric representation of your credit worthiness.  It predicts how you are likely to manage credit in the future based on how you’ve managed credit in the past.  For example, if you have not paid your credit accounts on time, exceeded your credit limits, defaulted on any credit accounts, and/or filed for bankruptcy, your credit score will be lower than if you have managed your credit well.  Your credit score is calculated by applying a mathematical model to the information in your credit record.  This information includes your account payment history, and the kinds of credit you have, among other things.  As the information in your credit file changes so will your credit score.

How to Order Your Credit Score

The main provider of credit scores is a company called Fair Isaac, Inc.  It is the creator of the FICO score, which is used by most financial institutions and other creditors.  You can also order your credit score from  Also some companies have developed their own credit scores, and each one may use a slightly different formula, plug somewhat different information into the model, and/or weigh the information differently, even though they will all take your credit record data into account.  For example, each of the three national credit bureaus—Equifax, Experian and TransUnion—has its own credit score, developed with the help of Fair, Isaac. 

You should order your credit score from each of the national credit bureaus which can be found at Experian,TransUnion and Equifax.

Why Having a High Credit Score is Important

Generally your credit scores range from 300 to 850.  The higher the score, the better, although a score of 720 or higher is considered good.  The lower the score, the greater the penalty you will pay in terms of the interest rate you qualify for when you apply for credit and the other terms of credit you will be offered.  If you go to you can use a Loan Savings Calculator to determine how different FICO scores will affect the cost of a loan you might apply for, and you can get other tips on how to improve your score.

Tips for Raising Your Credit Score

Pay all your debts on time.

Keep your debt levels down.  The less outstanding debt you have relative to your overall credit limits, the better.

Use your credit cards but pay down the balances.  Don’t let them mount up.  Many credit scores compare the amount of debt you have to your credit limits.  The closer you are to your credit limit, the more likely that your credit score will be negatively affected.

Don’t apply for a lot of credit accounts.  Although it is helpful to have some long established  credit accounts with a variety of creditors-a national bank card and a bank loan for example-too many credit accounts can lower your credit score.

Don’t close long standing accounts.  It will harm your credit score because it will harm your outstanding debt to overall credit limit ration.

Minimize the amount of credit you apply for within a short period of time.  Your score may be negatively affected if you have a lot of inquiries in your credit report because you applied for a lot of credit recently.  However, inquiries that are the result of account monitoring or prescreened credit offers don’t count.  Open new credit accounts only if you really need to.

Correct problems in your credit history right away.

Maintain a checking and a savings account.  This demonstrates stability.

Steer clear of retail store charge cards.  They are not considered good credit to have by credit grantors.

Avoid finance company loans for the same reason.

Minimize the frequency with which you transfer balances from one card to another.  A better strategy for dealing with your debt is to focus on paying down existing balances.

Use exactly the same name on all credit applications.

Do not accept pre-screened offers.  They are not truly pre-screened.  When you accept the offer your credit will be checked causing and inquiry to be placed on your credit history which will lower your score.