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Understanding Credit Scores

Your financial GPA

Your credit score, also know as a FICO® score, is a number that reflects your credit worthiness at a given point in time. It is the key to your financial life and is used by mortgage lenders, car loan lenders, credit card companies, landlords, cell-phone companies, and even prospective employers to size whether you are a good or bad credit risk.

Your credit score is based on information on your credit report, compared to information on millions of other people.

Your score is calculated based on your rating in five general categories:

The FICO Ranges Lenders use your credit score as a thermometer to determine if they're going to grant credit or not. The median FICO score is 720 out of a possible 850. The riskiest customers have scores below 600. Higher scores are better and translate to lower interest rates.

Improving your score

If you want to improve your credit score, consider the following tips.

Payment history

• Pay your bills on time.
• Get current with missed payments.
• Understand that paying off or closing a delinquent won't remove it from your report.
• Contact your creditors or a credit counselor if you're having trouble.

Amounts owed

• Keep balances low.
• Pay off debt rather then moving it around.
• Don't close unused credit cards.
• Don't open unneeded credit accounts.

New Credit

• Shop for a loan within a focused period of time.
• Re-establish your credit history if you've had problems.
• Check your credit report.
• Don't open new accounts rapidly if you're new to credit.

Types of credit

• Apply for and open only need accounts.
• Have credit cards — but manage them responsibly.
• Remember that closing an account doesn't make it go away.

Quick Hits on credit score

The following will negatively affect your credit score:

• Unpaid medical bills and parking tickets can impact your credit score.
• Heavy credit use can lower your score, even if you pay large balances off in full in a short time.
• Credit scores will drop if you sign up and use store cards for initial discounts.