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How Credit Scores Work
Before breaking down the mechanics of how credit scores work, let’s take a look at how to find your score.
Once you understand what credit scores mean and what factors affect yours, you’ll be empowered to take actions which can affect your score in a positive way and reduce debt.
How To Get Your Credit Score
Many credit reporting agencies advertise free credit reports, which detail your credit history with one or more credit reporting bureaus.
- You can also receive (within 60 days of notification) a free credit report if you apply for credit and are denied. Unfortunately, these free credit reports don’t often include your credit score and are only a record of your credit history. Most credit reporting agencies will only provide your credit score for an additional charge.
- CreditGUARD of America provides a free credit report, free Coach Credit Score™ and free 30 day trial of Coach Credit Scout™ with the purchase of the CreditGUARD Coach™ Program.
- The CreditGUARD Coach™ Program includes Coach Game Plan™ and Coach Budget Analysis™. Coach Game Plan™ provides detailed analysis of your credit report and gives step-by-step instructions on how to understand and manage your credit score. Coach Budget Analysis™ helps you develop a budget and gives tips on getting out of debt faster!
Understanding Your Privacy
Not just anyone can access your report. Typically, you’ll need to allow someone permission to view your credit.
In the United States, the federal government regulates credit reporting through The Fair Credit Reporting Act (FCRA) of 1970. This act allows credit reporting agencies to only pull a credit report for the following reasons:
- In response to a court order
- Upon your request
- Complying with state laws requiring reports to child support enforcement agencies
- Or by a company or individual who is using it for:
- A credit transaction
- Employment purposes
- Insurance underwriting
- Determining eligibility for license from government (i.e. driver’s license)
- Determining eligibility for loan
- A legitimate business need
Keeping track of your score is important for several reasons:
- A low credit score lets lenders know that you may be a high-risk borrower and therefore may limit the types of loans you’ll be offered
- Falling prey to credit scams or identity theft can negatively impact your score
Understanding Your FICO Score
A credit score is a formula that creditors use to predict the “risk” factor of providing credit to an individual. Creditors will analyze your credit reports, by examining and evaluating key factors related your credit. There are different types of credit scores depending on the type of credit you are applying for. Credit scores developed by Fair, Isaac and Company are referred to as FICO scores. Below is an example of the factors that make up a credit score:
- Payment history–35%
- Current outstanding debts–30%
- Length of credit history–15%
- New credit applications–10%
- Types of Credit–10%
Credit Score Factors
As you can see, paying your bills on time and keeping outstanding debts to a moderate level is important to achieving a positive credit score.
How To Analyze Your Credit Score
The higher your FICO score, the better your credit.
- FICO scores below 539 are considered very poor credit.
- FICO scores between 540 to 589 indicate poor credit.
- FICO scores between 590 to 669 signify fair credit.
- FICO scores between 670 to 729 denote good credit.
- Individuals with FICO scores over 730 are considered to have very good credit.
Now that you know how your credit score measures up, where do you go from here?
Understanding Your Next Steps
- As you’ve seen, payment history carries the most weight in determining your credit score; establishing a good payment history by paying your bills on time is a simple step towards making headway.
- Look over your report for mistakes, checking for duplicated or incorrect information about your credit accounts.
- Know how much your credit is costing you.
- Contact one of our credit counselors to find out how we can help you better manage your finances. CreditGUARD also offers a robust debt relief program–our nonprofit debt consolidation programs help you stay on top of finances by helping you understand your monthly expenses, create a prioritized approach to your finances, enabling you pay off your debt faster and easier.
- You can use CreditMessenger from CreditGUARD to receive step-by-step instruction on how to manage your credit score.
- For individuals with good credit, CreditGUARD of America, Inc. also offers Coach Credit Scout™ for monitoring your credit against identity theft and credit card fraud.
Whatever your credit problems are, CreditGUARD of America, Inc. is there to help you.
Contact us online or call CreditGUARD of America, Inc. at 1-800-853-0065 to find out how improving your credit can help you!