What Does Your Credit History Look Like? What Things Affect It?

Having a solid credit history is important, because it plays a vital role in many financial decisions you make. A low credit score can keep you from getting a mortgage and it can even cause you to pay higher rates for insurance.

There are several types of credit scores in existence, but the one recognized by most people and used by most creditors is the FICO score. The FICO score ranges from 300 to 850. Anything over 700 is considered a good FICO score, while anything under 600 is considered bad. Though the scale goes up to 850, those with a score of 750 and above usually get the best interest rates available.

The way to improve your FICO score is to manage your credit well and have a good credit history. This generally means paying all your quick loan dues on time and keeping the balances on your credit cards low. These are the things that most affect your score, together accounting for nearly two-thirds of your score. Other aspects that go into your credit score are the age of your accounts, or how long you have had credit; the types of accounts you have, including the balance between revolving accounts such as credit cards and fixed loans; and how often you apply for new credit.

Paying late is probably the most damaging thing you can do for your credit score. Paying late once or twice may not have a huge effect on your score, but chronic late payments will lower it significantly. If your late payments turn into a default, it can be devastating to your credit score.

Though there are plenty of things you can do to lower your score on your own, sometimes your score gets lowered in error because a creditor reports something incorrectly. There have been studies that have shown at least one in four credit reports has an error on it.

Because of this, it’s important to check your credit report often. The government now requires the three major credit reporting bureaus to provide you a free copy of your credit reports once a year for free. This not only allows you to check for errors, but it can also be a way to check for identity theft.

Though credit bureaus are not required to give you a free copy of your credit score, it sometimes pays to check it. If you plan to finance a home or car soon, it may be worth it to pay to get a copy of your credit score to see if it’s as high as you think it is. If your credit score is lower than the minimum needed to get the best interest rate on a mortgage, it could cost you thousands of dollars in interest over the life of the loan.

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