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Understanding Credit Scores

Understanding and managing your credit scores can help you save thousands of dollars on many of life’s big purchases. Here’s a break-down of what you need to know about credit scores:

The basics

A credit score is a numerical evaluation of your credit history used by businesses to quickly find out if you are a risk to the company as a borrower. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries, and other elements of your credit report. You have three credit scores, one each based upon your credit reports from Equifax, Experian, and TransUnion.

The numbers

Credit scores usually range from 300-850. Anything above 680 is considered to be “good.” Good credit scores can help you get the best deals and lowest rates on major purchases. Your credit score can alter slightly any time something changes on your credit report.

The models

There are thousands of slightly different credit scoring formulas (including FICO, Beacon and Empirca scores) used by bankers, lenders, creditors, insurers, and retailers. Each score can vary somewhat in how it evaluates your credit data. It’s normal for your credit score to go up or down about 40 points depending on which scoring model and credit report data is used. The FICO score is the model used when purchasing a home.

The system

Your credit score improves if you:

Alternately, your credit score will decrease if you: pay your bills late, have too many or not enough accounts, max out your credit cards, haven’t had credit very long or apply for too many new accounts.

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