Understanding Your Credit Scores

July is Consumer Credit Awareness month here at Apprisen, so stay connected to ApprisenMoneyMinute.com and stay informed.

Your credit scores are not as complex as you would think. Let’s start with the basics; there are three main credit reporting agencies that are most commonly used within the United States:

Equifax www.equifax.com

Transunion  www.transunion.com

Experianwww.experian.com

Companies report your account information to these agencies. Each reporting agency has its own score range, which produces a credit score based on how you manage the accounts reported to them. Scores vary based on the agencies score range; the most commonly used is FICO and the range is from 300 to 850. Creditors also do not have to report to all three agencies and sometimes they don’t. This too will impact your scores, because not all agencies have all your accounts and information to pull data from.

There are 5 main factors that impact your score:

35% Payment History:
Repayment of past debt, which is the most important factor in your credit score.

30% Debt Amount:
Total outstanding debts, especially revolving debts like credit cards.

15% Length of Credit History:
How long each account has been open and the time since the last transaction.

10% Types of Credit Used:
A variety of credit types (revolving, installment, etc.) shows you can handle different types of credit.

10% New Credit:
Opening too many new accounts near the same time suggest trouble to lenders.

Try looking at your credit scores as living moving things. Living things need other things to help it move and grow; the same is true for your credit scores. If you do not have open accounts that you make regular monthly payments on, then you are not getting credit toward your Payment History. If you have no accounts with any balances, you will have no scores because there is no account information to use to produce a score. If you only have collection accounts and you pay those off, your score will improve some, impacting your Debt Amount in the month that you pay off the accounts. But if you do not have open accounts after you pay off the collections, your score will not continue to rise.

Your credit scores are impacted in real time. This means if you pay an account on time this month; your score will gain the full benefit of the positive payment this month. Your scores react immediately to activity on your accounts when reported. The same is true if you are late; your score will suffer the full penalty of the delinquency by going down in the same month that you are late. It is not a gradual increase or decline over months from one action, but every month your score will move up or down based on your accounts activity.

There are other factors that impact your credit scores that Apprisen will address this month in ApprisenMoneyMinute.com such as, how important is it to have a revolving account like a credit card, if you find errors on your report, what can you do? If you have been a victim of identity theft or fraud, how can you protect yourself?

If you have an immediate need to review and understand your credit reports and scores, such as trying to become a homeowner, or wanting to decrease the cost of your homeowners insurance to lower your mortgage payment, or lower auto insurance costs; Apprisen offers a Credit Health Education Session that will provide you with the understanding, and education you need in addition to reviewing your personal reports and providing you with a customized plan to reach your goals. Call 1-800-355-2227 or visit our website for more information or to schedule an appointment.

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