More and more, our economy is moving from one based on dollar bills and coins to debit cards and credit card statements. To keep yourself ahead of the curve, it’s important to make sure that you are aware of your personal credit score and how your credit score can affect some of  the most critical decisions in your life.

What is a Credit Score?

Your credit score is an analysis of your credit files, based on statistics that represents your creditworthiness, often determining how likely it is that you will be able to pay back a loan or stay up-to-date on monthly payments.

You may have heard of people using the term “FICO score” when referring to their credit score. FICO is an acronym for Fair Isaac Corporation, the creator of the software used to calculate your credit score.

What Goes into my Credit Score?

The factors that credit bureaus (e.g., Equifax, TransUnion, and Experian) consider in determining your credit score are your credit payment history, current debts, length of credit history, types of credit used, and frequency of applications for new credit.

Your credit payment history essentially tracks your behavior in regards to your different lines of credit. Different factors that could have an adverse effect on this would be number and severity of past due items on file, or the number of accounts that you have paid as agreed.

Current debts would factor in the different amounts that you owe on your accounts or the number of accounts that have balances. For example, having multiple credit cards with high balances would count against you in this category.

Your length of credit history is important in that it gives the credit bureaus more information to work with when considering your loan application. It also allows for credit bureaus to weigh your past transgressions against current good behavior; a missed credit card payment three years ago wouldn’t count against you as much as your past three years of on-time payments.

The types of credit used makes a note of how many of which accounts you have open, whether it be mortgages, credit cards, retails accounts, or whatever else

Your new credit applications give the credit bureaus a better picture of your re-establishment of good credit, time since credit inquiries, and time since recent account openings, among other facts.

You can find more information on your credit score, including more on what is in your FICO score, what is not in your score, how scoring helps you, improving your score, and a fact vs. fiction page regarding popular myths about your credit on the FICO website.

How Does My Credit Score Help Me Get a Loan?

Keep in mind that your credit score is a critical factor when applying for a loan. The better your score is, the better your loan options will be.  Having an excellent credit score may be a huge asset when in the qualification process. A long record of up-to-date payments and good credit management makes you a more attractive candidate for a loan, and the current economic environment is one where the best candidates are in very high demand.

We encourage you to check your credit score to gain an understanding of where you stand, and do all that you can to improve it. We can help you with determining the correct strategy to do this if you require it.