What's My Credit Score?

What's my credit score? That's the question thousands of homeowners are asking when they're denied loans, charged more for loans that they do get, and find their interest rates on credit cards raised.

A credit score is an empirically derived, statistical method of assessing risk. In other words, it's a way for credit reporting agencies to assign a numerical number to your credit worthiness. This number is used to predict the relative likelihood that an individual will repay a credit obligation, such as a mortgage loan or automobile.
First of all, where does your credit score come from? The numerical score is calculated based on statistical models using collected data on your credit report to assess your overall credit risk. Using this score, the creditor can assign odds to the loan eventually being paid off.

If you want to know what your credit score is you have to contact one of the three major credit reporting agencies in the country - Equifax, Experian, or Transunion. All three companies are obligated by law to give you one free credit report a year. To find out what your credit score is, however, you'll usually have to pay money.

How is My Credit Score Computed?

Your credit score can range from a low of 300 to a high of 850. The median national credit score is currently at around 715 but decreasing every month as the economy continues into its tailspin. The various credit reporting agencies calculate it in different ways - but it normally is computed from 5 factors:

1) Payment history - one of the more important factors in assigning a number to your credit score. It accounts for about 35% of your total score. So if you want to improve a bad credit score, the best thing that you can do is to start and continue to make your payments on time.

2) Your total debt amount - put simply, the more you owe, the lower your credit score is going to be.  Your total debt amount counts for about 30% of your credit score.

3) How long is your credit history - If you've never had credit before and are looking for your first loan, in effect you have no credit history which means that you score a zero. This accounts for approximately 15% of your credit score.

4) New credit - If you have credit, every time you apply for a new line of credit your score dips a bit. New credit counts for about 10% of your computed score.

5) Types of credit used - the more types of credit you have - mortgage, credit cards, car loan, department store cards, etc, - the more hits you'll take on your credit score. This element accounts for 10% of your score.

You can literally lose money by having a poor credit score. For example, instead of paying %5 for a loan, you may be forced to pay 10% or more - simply because of a difference in your credit score. Depending on the size of the loan, this can very easily add up to thousands of dollars.

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