Your credit score and why it mat­ters

The Palm Beach Post - Residences - - Front Page - ByJay McKenzie

As the say­ing goes, no pain, no gain. In­vest­ing time now to un­der­stand your credit report and credit score will pay big div­i­dends through­out your life.

Here’s what you need to know:

The big three credit bu­reaus pri­mar­ily fo­cus on what you owe and your re­pay­ment his­tory.

The most com­monly used credit score — also re­ferred to as a FICO score — has a range from 300 to 850.

Stan­dards can change — and in some cases, have in­creased for mort­gage len­ders — as to what’s con­sid­ered a good credit score.

There’s con­sen­sus among experts that 720 is a good score. 740 or higher will typ­i­cally earn you the low­est in­ter­est rates and the best terms.

Your score helps busi­nesses pre­dict the odds that you’ll go 90 days past due (or default) in the next two years on money that they lend you.

Your FICO score is based on five fac­tors, weighted as fol­lows:

Your pay­ment his­tory: 35 per­cent of your score.

Amount of debt you owe: 30 per­cent of your score.

Length of your credit his­tory (gen­er­ally, longer is bet­ter): 15 per­cent of your score.

Amount of new credit you re­quest (too many re­quests for credit, es­pe­cially in a rel­a­tively short pe­riod of time, is a neg­a­tive): 10 per­cent of your score.

Types of credit you use: 10 per­cent of your score.

Len­ders for mortgages, auto loans and credit cards use your score to help un­der­stand your abil­ity to pay debt, based on your past pay­ment his­tory. Some newer credit mod­els fac­tor in your in­come and job his­tory.

How­ever, the old say­ing re­mains true: The best pre­dic­tor of fu­ture be­hav­ior (in this case, pay­ing bills on time) is past be­hav­ior.

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