The primary purpose of a credit score is to help lenders assess individuals’ risk of not repaying a loan, according to the Consumer Federation of America. If you’re not sure what determines your score, don’t worry – you’re not alone. In fact, sixty percent of people don’t know what determines a credit score, according to Visa. But that doesn’t mean they don’t think they know! Below are the top five factors people think matter, but don’t.
What doesn’t matter:
1. Employment history
2. Interest rates on debt
3. Assets/savings
4. Age
5. Where you live
Those things do not affect your credit score – most of that information doesn’t even appear on your report and is prohibited from being used for credit considerations under the Equal Credit Opportunity Act. But what does? We’ve got the top five.
What does matter:
1. Paying on time
2. Amounts you owe
3. How long you’ve had credit
4. New accounts and credit checks
5. The number and type of accounts
Always pay your bill on time, even if you can’t pay it off in full. Making that deadline is more important to your score than the amount you pay. Keep card balances below 25 percent of the credit limit – lenders get worried if it looks like you’re maxing out all your cards. It’s also best not to close accounts – keeping older accounts open can help your score. If you must, close only one every few months and don’t close any accounts within six months of applying for a loan.
You actually have three credit scores; according to MSNBC, there are three major credit bureaus — Experian, Equifax and Transunion — and each one calculates your score a bit differently, giving you three somewhat different credit scores. Ideally, you want each score to be around 720 for the best interest rates in today’s market.
Don’t dimiss your credit score! You’re entitled to one free copy of your report every 12 months (www.annualcreditreport.com), and you should take full advantage of that. Looking at your report will help you understand what is on it, and check for any mistakes or signs of identity theft.
