Most people may know their credit history when they look at their credit report, but 70 percent do not even have an idea that they have a credit score. And this score, which is a three-digit number, may get in the way between you and your important purchase. You may know what is in your credit report, but understanding your score is an important part of your credit health.
Why do you need to understand your score if you already know what is in your credit report? The reason is most mortgage lenders and large financial institutions will want to know your credit risk level when applying for credit. They will base their assessment and approval process for credit application on your score. FICO scores are the most-used credit scores. Though other companies have their own version of a credit score, FICO scores remain to be the most widely-used score. In fact, most people refer to their credit scores as FICO score. Other companies’ version of score may be used by lenders to view your credit, but if you know your FICO score lenders will really to see you.
So what is in a score? The highest score you can get is 850 and the lowest is 300. A good score should be at least 720 or above. If you have a score of 720, there is no need to worry about increasing the number as lenders put you in the same group of people with score of 800-820. Also, lenders find it acceptable and usually get loan approval without problem and at a minimal interest rate. However, if your number drops below 700, there is definitely a need to work on the numbers and pump it up. You will not know the overall credit health unless you know your FICO score.
What are the criteria for credit scoring? Let’s start with payment history, which takes 35 percent of the scoring procedure. Your payment history should show on time payments and no missed payments on any accounts that you might have because this is the most important information lenders look for.