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How’s Your Credit?

 

Money

Your credit score is used for more things than you might realize, and finding housing is one of them.  Whether you are renting or buying, credit comes into play.  Many people, such as landlords and lenders, will check your credit and use it to judge how reliable or risky you are.  When it comes to a home loan, your credit score will directly influence what kind of interest rates you can get.

What exactly is your credit score?  Your credit score is a number that will range from 300 to 850, called a FICO score. There are various scoring formulas, but FICO is the most common.  A low score tells lenders you would be a high risk.

FICO Scores are based on several factors that are weighted differently, which means certain factors affect your score more than others.

Payment History counts for 35% of your score and is based on the number of on time and over due payments.

Amounts Owed counts for 30% of your score.  This factor looks at how much debt you have. You want to keep your amounts owed lower, preferably less than 50% of the total credit you have available to you.  For example, if you have a credit card with a limit of $1000, then you want to make sure you keep your credit card balance at $500 or less.

Length of credit history counts for 15%.  Unfortunately, this is one aspect of your score that you don’t have as much control over.  It is good to establish good credit early on to help you build your credit score over time.  Lenders assume that people who have had credit for a long time are less risky.

New Credit counts for 10% of your score.  This factors looks at how many requests you have initiated for credit cards, loans, or other debt over time.  Having several requests in a short period of time can bring down your score.

Types of Credit Used counts for 10%.  With this factor, your score will be better if you have both installment loans, such as a car loan, and revolving credit, such as a credit card.

How can you improve your credit score? Pay your bills on time. If possible, pay more than the minimum payment.  Pay past-due payments. Keep low balances. Don’t apply for multiple sources of credit in a short time. Make sure there aren’t errors on your credit report by pulling your credit report for free at annualcreditreport.com.  You can check your credit report 3 times a year, once a year from each of the 3 different credit reporting agencies.

If you have severe debt concerns, consider contacting a credit counseling organization, such as Money Management International at 1-866-310-7452 or online at http://www.moneymanagement.org/

Maintaining good credit is important, so don’t put it off.  Work on establishing good credit now, and you’ll be ready for whatever adventure life throws you.

For more information contact your UF/IFAS Jefferson County Extension Office.

 

Permanent link to this article: http://jefferson.ifas.ufl.edu/fcs/2017/01/17/hows-your-credit/