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 fi­five 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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