Media post: Buying a Used Car? Know Your Credit Score
Your credit score is a three-digit number that financial businesses, such as car dealerships, use to predict the likelihood that you’ll pay your loan payments on time. The score generally ranges from 300-850 and is calculated by certain credit agencies using information from your bank accounts, payment history and inquiries into your credit history.
How credit scores are used?
When you make an application for a loan, the creditor or lender often uses your credit score to make a quick yes or no situation on your loan. Your credit score is a powerful tool for lenders so they can quickly make a decision about extending you credit.
How many credit scores does somebody have?
There are several different versions of credit scores. According Easterns Automotive Group, the most common is the FICO score. Developed originally by the Fair Isaac Company, the FICO score is used by most lenders to decide whether or not to extend credit to you.
Is a higher credit score better?
Yes, a higher credit score means that you likely qualify for lower interest rates on your loans, credit cards and such. Lower rates mean you will pay more and having no credit history is the worst because lenders will have no idea whether you are a good credit risk.
What factors go into a Credit Score?
Because some parts of your credit history are more important than others, different pieces of information are given different weights. Here are a few examples of the percentage weighting that goes into a typical FICO score:
- Payment History Is 35% – Lenders are most concerned about whether or not you pay your bills on time. The best indicator of this is how you’ve paid your bills in the past. What they look carefully at is late payments over 30 days.
- Debt Level Is 30% – The amount of debt that you have divided by your credit availability is known as your credit utilization. The more you have borrowed, the lower your credit rating will be. Example of how you can affect this: Keep your credit card balance at 30% or less of your credit limit.
- Length of Credit History Is 15% – Having a longer credit history is a positive factor because it gives more information about your spending habits. It’s good to leave open the accounts that you’ve had for a long time.
- Inquiries Are 10% – Each time you make an application for credit, an inquiry “dings” your credit report because it looks like you are in some sort of financial trouble. Fortunately, this sort of inquiry is temporary and extinquishes in a year or so.
- Mix of Credit Is 10% – Having different kinds of accounts is favorable because it shows that you have experience managing a mix of credit.
How to Check Your Credit Score
You can check your own credit score through any of a variety of services. A few sites that offer free credit scores include CreditKarma.com, CreditSesame, and LendingTree.