A credit score is a summary of your credit history. It is used by credit card companies, home equity lenders, auto loan lenders, and finance companies when you apply for credit or a loan. If you have a low score, you may not get a credit card or a loan. Even if you do get a card or a loan, you may have to pay a higher interest rate. Credit scores are most often produced by Fair, Isaac & Co. (FICO).
What Is in My Score?
FICO uses a lot of different credit data in your credit report. This data usually falls into five categories (in order of importance):
- Payment history (i.e. account payment information, presence of adverse public records, severity of delinquency, number of past due items on file)
- Amounts owed (i.e. amount owing on accounts, lack of a specific type of balance, number of accounts with balances, proportion of credit lines used)
- Length of credit history (i.e. time since accounts opened, time since account activity)
- New credit (i.e. number of recently opened accounts, number or recent credit inquiries)
- Types of credit used (i.e. number of various types of accounts)
All of these categories are taken into consideration, and the importance of any factor depends on the overall information in your credit report. Also, your score considers both the positive and the negative information in your credit report. Some things, such as race, religion, age, salary, occupation, and where you live, are not taken into account.
What Is a Good Score?
The range of credit scores is 300-900. The average credit score is around 750. There has been a direct correlation between low scores and high default rates. On the other hand, as your credit score increases, your risk of default decreases. It should also be noted that your credit score may vary from credit bureau to credit bureau (but wide variations are rare).
How Can I Improve My Credit Score?
There are several ways to improve your credit score, including:
- Paying your bills on time
- Updating old accounts
- Not maxing out your credit lines
- Limiting the number of times you apply for credit
- Maintaining your accounts for a long period of time
- Staying away from finance companies
- Contacting creditors or seeing a credit counselor
- Keeping balances low on credit cards
- Requesting and checking your credit report
- Managing credit cards responsibly
Do I Need a Lawyer Who Has Experience with Credit Issues?
A tax lawyer may be able to help you in determining a feasible plan to improve your credit score. Consulting a lawyer may also be helpful if you believe your credit score is flawed or if you believe there are errors on your credit report.