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You And Your Credit
by John M. Roberts

Your credit score affects your entire life and the importance of it can never be underestimated. No matter where you go, what you do, or how you do it, your credit follows you, even though you may not be able to see it, feel it, touch it, or control it.

Requesting your credit reports and scores is a good way to start taking control of your money. There is one most common credit score used by banks to make decisions: the FICO score, developed originally by Fair Isaac Corporation.

FICO scores range from 300 to 850. Three different credit bureaus combine information from credit card companies and banks to make credit reports: TransUnion, Experian, and Equifax. Each of these bureaus may have slightly different information on you in their reports, which yields a different score.

The Equifax score is seen by some as being most similar to what banks actually see when they pull your credit report.

By federal law, you are entitled to one free copy of your credit report each year from each of the credit bureaus. Go to annualcreditreport.com to request them. You will have to pay about $7.95 a pop to see the scores as well.

Your credit score is based on several factors.

  • Payment history is the most important factor. It makes up nearly 35 percent of a FICO score. Any late payments or overdrafts, will hurt your credit score for several years.
  • Amount owed makes up about 30 percent of your score.
    This figure compares the amount you owe to your available credit. So someone who has a $2,000 balance and a $2,000 credit limit will look worse than someone who owes $3,000 but has cards with $30,000 worth of limits. This may hurt folks with large student loan balances. It's also the reason that you don't necessarily want to close accounts after you pay them off because it's better to leave them dormant to raise your available credit.
  • The length of history adds another 15 percent to your score. The longer your perfect record of on time payments, the better your score will be so if you've only been out of school for a couple of years, your credit score won't be as high as it can be down the road, providing you keep it clean.
  • New credit represents about 10 percent, although repeatedly shopping for additional credit can hurt your score.
  • Miscellaneous credit items round out your credit score with about another 10 percent of the total. This includes keeping a good mix of credit cards, auto loans, and other types of credit.

How you treat your credit is very important and what you allow to happen to it can have grave consequenses right up to the day you die, and sometimes well after you die.

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