TEMPLE, Texas — Having a good credit score can save you thousands of dollars over your lifetime. So, do you know your credit score?
How and when to obtain it? What effects your score? First of all what does FICO stand for?
Glad you asked, it’s the Fair Isaac Corporation that lenders use to determine whether or not you can and will pay them back.
I'll let Certified Financial Planner Neil Vannoy describe in greater detail as he told 6 News, "There are three major credit bureaus – Equifax, Experian, and Transunion. They collect information about your history with credit and debt and compile it into a credit report. They then calculate a "credit score" which is an easy way to summarize everything contained in your credit report. So, your FICO score is a quick estimate of your creditworthiness. And having a good score is important because not only are they used when you apply for a loan, but employers, insurance companies, and other businesses use them as well."
There are 4 major factors that affect your score that will land somewhere between 300 and 800.
Neil says, "Paying your bills on time is the most important part of having a good credit rating since your payment history makes up around 35% of your credit score."
Neil also says that you also want to keep those balances small. "Avoid maxing out your cards since the lower the percentage of available credit you're using, the better your score will be.
This is known as your "utilization ratio" and it makes up 30% of your score. Also avoid closing out cards that still have a balance on them since this will increase your "utilization ratio."
The other two aren't weighted as strongly for your score, but still do matter as Neil explains, "An older credit file will have a more stable credit score, so it's important to keep old, "good" accounts on your file even if you're not using them anymore.
Frequently applying for credit can lower your score for up to 12 months for each inquiry."
So just to review, pay those bills on time. Don't max out your credit cards, older accounts should not be closed as you want to show a long pattern of credit worthiness and keep those hard inquires to a minimum. And if you want to know what your scores are, as they will be different with all three bureaus, you can get a free look once a year at annualcreditreport.com.
A couple of more points to make. The laws have been changed when looking for a mortgage or a car loan, you now have 30 days to shop for the best loan by contacting many lenders and it will only look like one hard inquiry over those 30 days. And the average credit score in America, according to vantage score is 698, which falls in the good category.