Your credit worthiness is most often expressed in terms of a score from 300 to 850. These scores are computed by a patented algorithm - a complex mathematical equation that considers 40 components of your credit history. Scores 760 or above are considered golden and the median American credit score is 723. The average score, however, is variously quoted by different sources as somewhere in the upper 600s.
Although the specifics of how your score is formulated are very complex, below are the generalities:
- Your payment history - 35% of your score. A track record of on-time payments boosts your score. Late payments, charge-offs and bankruptcies drag it down.
- How much you owe - 30% of your score. The less you owe compared to your credit limit, the higher your score. FICO takes into account what you owe on all your accounts, the number of accounts with existing balances and how much of your available credit you're using.
- Length of your credit history - 15% of your score. A longer history increases your score. However, you can earn a high score even with a short history if you demonstrate responsible credit handling.
- New credit - 10% of your score. Opening new credit accounts affects your score. However, FICO distinguishes between applying for many sources of credit and comparison shopping for a single loan. To avoid lowering your score if you are rate shopping, finish your search within 30 days.
- Other factors - 10% of your score. Variables that impact your score include your mix of credit types: personal lines of credit, credit cards and installment loans such as a mortgage or car loan.
Source: U.S. General Services Administration and bankrate.com.
How to get your credit report
Thanks to a U.S. federal law, you're entitled to one free credit report per year from each of the three nationwide consumer credit reporting companies - Equifax, Experian and TransUnion. Although these reports are free, you'll have to pay to get your actual credit score.
The cost can vary: For example, Experian charges $14.95 (at the time of publishing)
To order your free credit reports:
- Visit the only web site authorized by the Federal Trade Commission: www.annualcreditreport.com
- Call 877-322-8228
- Write to:
Annual Credit Report
P.O. Box 105281
Atlanta, GA 30348-5281