Your Credit Score Questions, Answered!

CreditScore-Questions

Credit scores: everyone has one, but what does it really mean? How can you improve your score if you don’t know the mechanics behind it? Here are your top credit score questions, answered!

How is my credit score calculated?

Some compare your credit score to a school GPA- it’s a cumulative number which measures your success in relation to others. Your Fico credit score is calculated by the following components:

Credit history 15%

Payment history 35%

Amounts owed 30%

New credit 10%

Types of credit used 10%

How much does credit really help/hurt you?

The answer depends on whether or not you really need credit. If you tend to pay in cash for things and aren’t applying for a car loan, home mortgage, etc. then credit probably won’t be as big of an issue for you. Applying for loans or a new line of credit will mean a good credit score should be very important to you.

Your credit score can not only affect your ability to get one of these loans, but creditors will use your score bracket to determine your interest rate. In certain circumstances, a bad credit score can even affect your ability to get a job. Certain employers, especially those hiring in the financial sector, may take one’s credit score into consideration when hiring them (it can be seen as a tool to determine reliability and responsibility).

Is this the most important measurement as you apply for a mortgage, car loan, personal loan, credit card, etc. or is it just one of many and it really doesn’t have as much influence as you’d think?

It certainly is a way to measure loan payback risks and is the best indicator available for lenders determine how risky of a borrower you are. Even though sometimes negative items on a credit report can be explained, the influenced nature of the credit report to a lender for any loan will be great.

How long does it take to repair a bad score?

Just like Rome wasn’t built in a day, your credit score cannot be fixed in a day either. The amount of time is dependent on what exactly needs to be fixed. Depending on whether there was a mistake on the report or a loan was paid off, getting a bad score fixed will take time. Either way, if you give it enough time and do what needs to be done, it is possible to obtain a better credit score.

What kind of circumstances can bring down a good score?

Numerous different variables are taken into consideration when determining your credit score and all of these factors can start to pile up, bringing down your credit score.

  • Missing payments
  • Applying for too many lines of credit at once
  • Closing too many cards
  • Ignoring a debt
  • Tax Debts
  • Repossessions
  • Failure to pay your mortgage
  • Having little available credit
  • Your debt to available credit ratio
What are classic “silly” mistakes people make that affect their score?
  • Not paying bills on time- setting up automatic payments or putting a reminder in your phone is such an easy way to ensure your bills are paid on time and you avoid accumulating debt in the form of late fees! Just always be sure to double check your payments went through.
  • Late fees for ignoring outstanding debts pile up and greatly affect your credit score!
What is the actual, likely difference in interest rates that you’d get for home loan, car loan, credit card interest, etc., for selected scores such as 650, 710, 740, 770 and 800? What are some handy-dandy tips/best practices for improving a low score and keeping it that way?

There is no way to estimate the difference in interest rates for varying scores because every creditor has their own system. However, the higher the score, the more likely you are to get the best rate and term agreement. The lower the score, the more likely you are to need a cosigner or pay a larger down payment/ interest rate.

To improve a low score, work on paying down your debt by paying your bills on time, keeping your balances and revolving debt down, and paying off debt rather than moving it around. Also, try and limit the number of credit accounts you apply for and open.

For more information, visit The Fair Credit Reporting Act.

Have another credit score question? Comment your question below!
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2 comments

  • Hi,I am a 23 year old college student. A few years ago I got approved for 4 credit cards. I defaulted on them about 2-3 years ago after I lost my job. After that things went downhill academically, financially, and mentally. I am back in school now, and I have been doing good in my classes. I was served by three credit card company with a lawsuit. I showed up for one of them, made an agreement with the attorney and never paid him. I wasnt thinking. I got a judgement against me for around ~$4,900 dollars. Two other companies served me with lawsuits. I never showed up and I got two more judgements against me. One for ~$2,800 dollars, and the other one for ~$3,900 dollars. I got this third credit card company that hasnt taken me to court, and I have contacted them. They said my 2,000 credit card had accumilated interest and now its ~$7,500 dollars. They said they were willing to settle now for $2,000 dollars. I dont have this kind of cash now. I asked them now for 4 months. I am still dealing with them for a longer time. Now for my defaulted credit cards I realized, I made a serious error in judgement. I told them I can make monthly payments for it and they agreed. I tried to ask them to come down in the amount, they said they would with full payment. I dont have full payment. I feel like everything is hopeless. I dont own any property but I am self-employed with this bartending company and seldomly work. I’m overwhelmed so much that I can’t concentrate in my studies. I know school is important, and I need to figure out what to do.I have a few questions that have been bothering me immensely, so please bear with me. Its been past >thirty days since my judgements. Are these judgements reported on my credit report? If so, how negatively does it affect my credit? When does my credit report get removed from these judgements and is clean again? Am i able to do anything myself to have these removed earlier?Will my bad credit report affect me in getting a job after I graduate? After I have fully paid the creditors in full, what should I do so that no further action is taken against me. What are my long term consquences? Should I hire an attorney and have them help me?Thanks.

    • Jackie LePage Jackie LePage /

      Hi Otelia,

      Thank you so much for these great questions! Why don’t you give us a call so we can make sure we answer all of these questions for you? This way we can also keep it more confidential as well. You can reach our office at 631-470-8204.

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