How Your Credit Score Affects You

At a certain point in your life, your credit scores become more important than your SAT scores. Do you know how they’re calculated? Sometimes called FICO scores (because the software to calculate the reports was created by Fair Isaac Corporation), your credit is based on five points that are weighted differently. Here’s the breakdown:

35 percent - Your Payment History
30 percent - Amounts You Owe
15 percent- Length of Your Credit History
10 percent- Types of Credit Used
10 percent - New Credit

If you pay your bills on time, pay down your debt and try to avoid applying for credit, you’ll spend less time correcting errors later.

Your FICO score is a three-digit number that will determine how high your interest rates will be on things like your credit cards, your car loan, a home mortgage or even whether or not your application for a cell phone or to rent an apartment will be accepted.

Fair Isaac works with three reporting credit bureaus to help calculate your scores. Those credit bureaus are: Equifax, Experian, and Transunion. All three major credit bureaus use the same formula for calculating your credit rating. Equifax calls it the Beacon credit score, TransUnion calls it Empirica and Experian calls it Experian/Fair Isaac Risk Model. Still, all three are the same formula developed by Fair Isaac.

Make sure you know your score before deciding to buy a home. It’s important that you get any mistakes or blemishes on your report cleared up, as you’ll want to have the highest score possible to help you negotiate a lower interest rate when shopping for mortgages.