UNDERSTANDING YOUR CREDIT SCORE
Posted on: Oct. 26, 2016 in Credit, Car Loans

In order to make large purchases, most people rely on credit. Whether looking for a car, house or some other big-ticket item, the ability to borrow money plays a huge role. This is where your credit history and credit score come in to play. But what is a credit score? How is it determined?

Your credit score is a number somewhere between 300 and 850 that tells lenders about your borrowing and repayment history. There are many companies that calculate scores, but one of the most well-known is Fair Isaac Corporation. This is how we get the term “FICO.” Regardless of which company created the score, most use a fairly similar collection of information about you to determine yours. Here are some factors that go into determining your credit score:

  • Payment history: How well you paid your bills is a major consideration. If you were late, have been sent collections, or have declared bankruptcy, your score will be lowered. Also, if you do not have a payment history because you’ve never borrowed money, your score will reflect this.
  • Outstanding debt: How much you owe already is also a factor, but it’s not the whole picture. Your debt-to-credit ratio is also important. That means that if you are close to your credit limit, your score will be negatively impacted.
  • Length of credit history: Simply put, your credit score is better if you’ve had account(s) for a long time.
  • New credit: If you’ve ever heard that opening new credit accounts can lower your score, it’s true. While it may seem like opening new accounts would help your debt-to-credit ratio, remember that the length of credit and payment history won’t be there on those new accounts. This isn’t to say you shouldn’t apply for new credit, just do so carefully and when needed.
  • Type of credit: This isn’t the biggest factor, but some credit scorers will look at the type of credit you have. Ideally, you’ll have a good mix of installment and revolving credit. Not sure what that means?
    • Installment credit involves a regular payment with a set end point. Examples include a mortgage, an auto loan, and student loans.
    • Revolving credit allows you to borrow from a line of credit, up to a certain limit, and as long as you continue to make payments you can continue to borrow up to that limit. Credit cards and home equity lines of credit are examples of revolving credit.

According to FICO, the average credit score in the U.S. is 695, which is considered fair. What do the other numbers mean?

  • Excellent: 750+
  • Good: 700 – 749
  • Fair: 650 – 699
  • Poor: 600 – 649
  • Bad: below 600

If your number is lower than you’d like it to be, all is not lost. There are ways to improve your credit and boost your score. Borrowing money and repaying timely is one way.

If you need auto financing but your credit is keeping you from getting approved, CreditYes can help! We can match you with a dealership in your area that will be with you every step of the way. Our service is fast and free. Fill out our secure online application and get behind the wheel of your next car today!



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