Credit
Note: New credit rules begin on February 22, 2010. Read about the new credit card rules now!
There are enough commercials and advertisements about credit to make your head spin! But the buzz word in them all is "credit score." Just what does that even mean?
Credit scores (also called FICO scores) are used to assess applications for credit, rent, insurance, and employment. It affects your ability to get loans and the interest rates on those loans. Higher scores lead to better interest rates lenders. The three big credit bureaus in the United States are Equifax, Experian, and TransUnion. While they are each required to provide one free credit report a year, the credit score itself is not free. However, this FICO score calculator will estimate your score for free. It also includes tips for improving the credit score.
| Credit Scores | |
|---|---|
| Excellent | 750+< |
| Good | 720-749 |
| Fair | 660-719 |
| Uncertain | 620-659 |
| Poor | Below 619< |
The factors that determine your credit score are called The Three C’s of Credit - Character, Capital, and Capacity.
Character: From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt. Considerations may include:
- Have you used credit before?
- Do you pay your bills on time?
- How long have you lived at your present address?
- How long have you been at your present job?
Capital: A lender will want to know if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income is unavailable.
Capacity: This refers to your ability to repay the debt. The lender will look to see if you have been working regularly in an occupation that is likely to provide enough income to support your credit use. The following questions may help the lender determine this:
- What is your current salary?
- How many other loan payments do you have?
- What are your current living expenses?
- What are your current debts?
- How many dependents do you have?
The pie chart below illustrates more factors that go into calculating credit scores. It is clear that paying off debts plays a crucial role in determining whether you get a good credit score. To learn more about credit and FICO scores, click here.
