What does your score mean?

This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including length of credit history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a three-digit score between about 300 and 950. There are other scores used by lenders and insurance companies (some of which are developed by FICO®) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower's potential risk. Regardless of whether the score was generated by FICO® or a system based on FICO® parameters, they all yield an industry standard three-digit score. This score places the borrower in one of four main categories (we named the third one ourselves.)

Super Prime, Prime, sub-prime, and shafted

Super Prime If your credit score is above 780, you are considered a "super prime borrower" and will have no trouble qualifying for the best interest rate on your home loan, car loan, student loan or credit card. Only 13 percent of credit users have a credit rating over 800.

Prime If your credit score is above 680, you are considered a "prime borrower" and will have no problem getting a good interest rate on your home loan, car loan, or credit card.

Sub-Prime If your credit score is below 680, you are "sub prime", and will likely pay a much higher interest rate on your loan.

Shafted Below 560 is the shafted score. At least that is how most lenders and credit issuers perceive it. You can still get a credit card but you will likely be hit with a security deposit or high acquisition fee. In addition to that your interest rate will likely be 22 to 23%. You can forget about most home loans and the majority of new car loans at this score. Below 560 is no place to be. Your credit FICO score affects not only whether you qualify for a loan and what rate you pay, but whether you will be able to rent an apartment or even get a job (an employer can legally refuse to hire you based on a low credit score). As well, you will pay much, much more in higher interest and unnecessary fees. A low score means you will pay higher premiums for car insurance. A very low score can even prevent you from getting a job with many companies. If your in this category Click here..

How are credit scores calculated?

The methods of calculating your credit score may differ slightly depending on the credit bureau. When obtaining your score from one of the Credit Bureaus it is important to understand that your score does not come directly from FICO®. It is adapted to each bureau and is given its own name: Equifax uses "Beacon", Trans Union uses "Empirica", and Experian uses "Experian/Fair Isaac." These scores are also referred to as your "Bureau Scores."

Since your score is derived from your bureau data, it will change every time your reports change. However your score is calculated, it will always take into consideration many categories of information. No one piece of information or factor determines your score. As the information in your credit report changes, the importance of one or several factors may change in your score. Lenders look at many things when making a credit decision, including your income and the kind of credit you are applying for. However, your credit score does not reflect these facts as it only evaluates the information retained by the credit reporting agency.

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What factors affect your credit rating?

There are five factors which are used in credit scoring calculations that determine your overall credit score.

Previous Credit Performance (Payment History) 35% A lender wants to know what your payment history is like. Have you paid everything on time, are you late on anything now, and so on. Your payment history is just one piece of information used in calculating your score, although it can be the very important. Due dates are not written in stone. Credit card companies from time to time will move the due date of your credit card statement, even if it is only 1 day or 2. This means, you can end up paying an extra $39 on your bill if you aren't careful.

Current Level of Indebtedness (Amount Owed) 30% How much is too much? Can the borrower pay me and still afford to pay his other bills? Not necessarily. Having available credit can actually help your ratio of debt to available credit. This is called your credit utilization ratio - what is the percentage of your limit that you have used up. These are the types of questions that most borrowers want to know and the answers are almost as important as your previous credit history. Helpful tip: If you have a $10 000 credit limit, keep the available balance around $2500 or 25 % of your available limit.

Amount of Time Credit Has Been In Use (Length of Credit) 15% Generally speaking, the longer the credit history the better your score. However, this factor only makes up 15% of your total score so even young people, students or others with short histories can still score high overall as long as the other factors show good. If you are new to credit than there is little you can do to improve this part of your score. Open an account and be patient. As if 2008, college students or teenagers can no longer benefit from their parents good credit rating by piggybacking on their parents good credit history.

Pursuit of New Credit (10%) Credit is much more popular today. Just look at the number of credit card offers you get via the Internet and in the mail. Consumers can now shop for credit and find the best terms to meet their needs. Each time someone runs a credit check on you, it creates an inquiry. Each time you apply for new credit, an inquiry is made on your credit report. These are like tiny dings that add up. If you apply for your own credit report here, your score will not be affected. Take on new credit only if you really need it, if you have no way of paying the debt, don't apply for credit.

Fair Isaac has changed some of its calculations to account for these new trends. Specifically, they treat a group of inquiries - which probably represents a search for the best rate on a single loan - as though it was a single inquiry (note: this only applies to auto or mortgage loan inquiries.) For example, auto loan inquires that are within 14 days of each other only count as one inquiry.

Types of Credit Experience (10%) A healthy mix of different types of credit, installment loans, retail accounts, credit cards, and mortgage. This score is not normally a key factor in determining your score but it can help a close score. Its not a good idea to try and open different types of accounts just to try and make this factor better. It will likely reduce your score in other areas. You should never open accounts you don't intend to use anyway.

What type of accounts you have, and how many, can make a big difference. The optimal ratio of installment versus revolving accounts depends on your profile and differs from person to person. One factor that seems to have significant influence is your percent of open installment loans. Too many can lower this portion of your score. For more information Click here.

Click here To Start Improving your credit score

Now that you know how your score is calculated, you can begin making changes to your current financial planning. The best things you can do are simple.

Pay your bills on time so your credit history must be fine. Delinquent payments and collections have a major negative impact on a score. However, identity theft is one of the biggest problems many of us face. You can do everything by the book and paying down your debt as fast as you can. Sounds simple, but this is the biggest 2 things you can do to keep your score high is to do a credit check, it doesn't cost you anything. Click here to learn more! Equifax. Second thing, don't assume that no one has stolen your financial identity and apply for credit cards in your name. Take preventative action and get your identity theft protection plan going to LifeLock Identity Theft Prevention