Understand Your Credit

Lenders use your credit score to determine whether you’re likely to repay the money they give you. On top of that, your score determines how much they’re willing to give you and how much interest you’ll hav to pay. Remember, lenders are in the business to make money; if they think there’s a risk that you won’t pay, they’ll charge you interest to help cover themselves in the event that you don’t.

Your FICO® Scores

More than 90 percent of lenders rely on your FICO scores, which are composites of your scores from the major credit reporting agencies.

FICO scores range from 300 to 850, and because they’re based on the most current information, they generally change every month.

While every lender has different criteria, generally accepted standards for credit scores are:

  • Excellent: 781 to 850
  • Good: 661 to 780
  • Fair: 601 to 660
  • Poor: 501 to 600
  • Bad: Below 500

Again, every lender has a different definition of “good” credit, so your mileage may vary between financial institutions.

What Makes Up Your Credit Score

A typical credit score relies on several factors, including:

  • Your history of on-time and late bill payments
  • The number of credit accounts you have (open and closed)
  • The types of credit accounts you have
  • Your recent credit activity
  • How much credit you are using
  • How long your credit accounts have been open
  • Whether you have debts referred for collection, foreclosure or bankruptcy, as well as how old they are

In most cases, a higher credit score equals better interest rates and higher loan limits.

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