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Understanding Credit Scores For Credit Repair

by | Dec 5, 2023 | News

A credit score is a number that represents how likely a person is to repay money they borrow. It helps lenders like banks and credit card companies assess the risk of lending money to someone. The score is based on the individual’s credit history and their financial behavior.

There are several important factors that influence credit scores:

1. Payment History (35%): This refers to your track record of making payments on your credit accounts, such as credit cards, mortgages and loans. Making payments on-time has a positive impact on your score, while late payments, defaults or bankruptcies can negatively affect it.

2. Credit Utilization (30%): This measures the ratio between the amount you owe on your credit cards and your overall credit limits. Maintaining a low utilization ratio (ideally below 30%) can have a positive impact on your credit score.

3. Length of Credit History (15%): This considers how long you have had active credit accounts. A longer credit history is generally viewed as more favorable since it provides a better understanding of your financial behavior over time.

4. Types of Credit in Use (10%): Lenders prefer to see a variety of credit types, such as credit cards, loans and mortgages. Having a diverse credit portfolio can positively impact your credit score.

5. New Credit (10%): Opening numerous new credit accounts within a short period could be seen as risky, especially if you have limited credit history. Each time you apply for credit, it can lead to a hard inquiry that may temporarily lower your score slightly.

Credit scores usually range from 300 to 850, with higher scores indicating better creditworthiness. Below is a general breakdown of different credit score ranges:

Excellent: 800 and above
Very Good: 740-799
Good: 670-739
Fair: 580-669
Poor: 300-579

It’s essential to note that various credit bureaus might use slightly different scoring models and lenders may have their own criteria for assessing creditworthiness. It’s important to keep an eye on your credit score and know what affects it. This knowledge can guide you in making smart financial choices and working towards better credit. Remember that you have the right to receive one free credit report per year from the main credit bureaus like Equifax, Experian and TransUnion. Going through these reports can assist you in spotting and fixing any mistakes that might be present.