How is My Credit Score Determined?

Many people don’t really understand how credit scores work or how they are determined.  These people are often shocked to discover the reality of their FICO score is not what they had imagined.

• ·Your credit card transactions are used to compute your credit score more than any loan or mortgage information.  Paying off a mortgage may increase your score only slightly, while regularly paying down your credit card balance will reflect in a large gain on your score.

Consequently, static loans are less important to determining your score than is revolving credit.

• Late credit card payments will greatly reduce your score.  The opposite, however, is not true.  Timely credit card payments will not increase your score by the same proportions late payments reduce the score.
• Strange circumstances can influence your score.  Imagine if you forget to return a library book and that cost and fine fall into collections.  Such a seemingly inconsequential result can negatively impact you and greatly reduce your score.
• No one knows with certainty the ultimate number of credit cards you should hold in order to positively influence your score.  However, if you have only one credit card and they reduce your credit limit or raise your interest rates, it will have a greatly negative impact on your credit score.  For this reason, it is recommended that you hold more than one credit card.
• Paying your bills on time doesn’t give you a high score.  On time bill payment is a very slight influence on your credit score.  It is assumed that everyone pays his or her bills on time.  This is why not paying your bills on time will negatively impact your credit score in greater proportion than paying them on time will positively influence your score.
• Forty percent of potential employers will check your score before hiring you.
• Canceling a credit card will lower your credit score.  It is better to keep your cards and keep them active.
• Credit score of a co-signer is just as adversely impacted as the primary endorser of a bad loan or line of credit.

In this system it is difficult to understand what actions might adversely or positively influence your score.  Some of the variables seem unfair, illogical, or just preposterous to the average citizen.  The best way to know what is impacting your score is to check it regularly and keep abreast of what is being reported about you.