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Understanding Your Credit Score

Couple looking at a document together

Infographic explaining credit score

Understanding your credit score

You know how important your credit score is to your financial health, but do you know how your credit score gets calculated? There are five categories that make up your FICO score, the model that most lenders use. Knowing what gets calculated, and how, will help you understand how to keep your credit score healthy.

Understanding your FICO score

Your payment history is the most important part of your credit score, comprising more than one third your total credit score. The amount of debt you owe represents 30% of your credit score. Less debt is better, in terms of a higher credit score. The length of time your accounts have been open and how long since the most recent action determines your credit history length. If you don’t have a credit history, you should begin using credit card and never miss a payment. The different types of credit (installment loans and/or revolving credit) that you are using makes up 10% of your FICO score. 10% of your credit score is made up of any new credit that you’ve recently taken on. Too much new credit could lower your credit score.

The three major credit bureaus. There are 3 major credit bureaus and each calculates their own score using FICO software. Your score may vary slightly from based on the information each burau has. Transunion scores range 300-850. Experian scores range 300-850. Equifax scores range 340—820.

Credit score ranges

Worst scores fall below 520, very poor scores fall between 520-579, poor scores fall between 580-619, below average scores fall between 620-679, average scores fall between 680-719, above average scores fall between 720-739, very good scores fall between 740-779, excellent scores fall between 780-850

Credit score fast facts: married couples have separate FICO scores, you need a credit history before you have a credit score, its against the law to consider age, race, religion, and national origin when determining credit score.

What damages your credit score?

Missed payments, overspending using credit, closing credit cards that have a positive credit history, applying for credit too frequently, relying only on one form of credit to build credit history.

Negative credit score items. How long do negative items impact your credit score?

Inquiries and credit checks last up to 2 years.

Charge off accounts, closed accounts, collection accounts, judgements, late payments, and tax liens last up to 7 years.

Bankruptcy lasts up to 10 years.

Free annual report

All Americans are entitled to one free credit report in every 12-month period from each of the three credit bureaus

Visit annual credit report.com to access your free report., requesting your credit score can also be requested but for a fee.

Piedmont Advantage Credit Union in North Carolina offers valuable banking solutions including checking accountssavings accountsmortgagesauto loansCDsIRAs and more. Bank online, with our mobile app, or visit one of our conveniently located branches in Winston-SalemEdenMooresvilleCharlotteGreensboroWilmington, Kenansville and Fayetteville, NC.

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