What you should know about your Credit Score


By CANDACE TUCKER, UGA Extension Coweta County

Are you confused about credit scores? If so, you are not alone. A recent Consumer Federation of America (CFA) survey found that a large percentage of consumers incorrectly answered wide-ranging questions about credit scores and their impact.

Whether your goal is to establish credit, repair damaged credit, or improve your credit score, the first step is understanding the factors that influence your credit score. Otherwise, the actions you take could do nothing at all or even damage your credit.

There are three major credit reporting agencies: Equifax, TransUnion, and Experian. Federal law entitles you to receive a free copy of your credit report every twelve months from each Credit Reporting Agency. As a Georgia resident, you are entitled by the Fair Business Practices Act to receive two additional free credit reports from each credit reporting agency per year. You can obtain your free credit report by calling 1-877-322-8228 or by visiting annualcreditreport.com.

Information from your credit reports is used in a mathematical formula to determine your credit score. Credit scores range from 300 to 850 and are a snapshot of your creditworthiness at a specific point in time. You’ll see lots of different scoring systems, but most lenders use the Fair Isaac Corporation (FICO) score. According to FICO, a FICO score is “a three-digit number based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how many months you have to repay, and how much it will cost (the interest rate).” The higher your credit score, the better.

Credit scoring systems are multifaceted and vary among different businesses. Some systems may consider additional factors or may weigh factors differently. However, most ways of calculating your score consider these types of information: payment history, credit utilization, length of credit history, types of credit, and new credit or inquiries.

Your payment history accounts for more than a third (35%) of your total score. Have you made payments on time for any credit cards, loans, and any other liabilities in the past? Your credit report shows payments made on time and highlights payments that were more than 30, 60, 90, or 120 days late. Even one late payment negatively impacts your credit score and remains on your credit report for seven years.

Credit utilization accounts for almost a third (30%) of your credit score. This is an indication of your available credit. Maxing out your credit cards hurts your score. If you use more than thirty percent of your available credit, a small drop in your score will occur. For example, if you have a credit card with a $10,000 credit limit, an outstanding balance greater than $3,000 would hurt your credit score.

Length of credit history accounts for fifteen percent (15%) of your total score. The longer your credit history, the higher your credit score. Paying off liabilities will positively impact your score but keep available lines of revolving credit (credit cards) open to increase the length of your credit history.

The types of credit you use account for ten percent (10%) of your total score. The right kinds of credit, such as a major credit card or two, a mortgage, and an installment loan (such as a car loan) will help your score. Lenders generally do not like to see too many lines of credit. Having a lot of retail store cards or finance company loans will lower your score.

New credit and inquiries determine the last ten percent (10%) of your credit score. Applying for new credit produces a hard inquiry on your credit report. More than one hard inquiry a year is likely to adversely affect your score. Avoid applying for new credit if you plan to apply for a loan in the near future. The drop in your credit score could affect the rate you receive on a mortgage or auto loan, causing you to pay more interest in the long run.

To establish or rebuild your credit score, pay attention to these five areas. By making improvements in these areas for at least six months, you could see an increase in your credit score. The benefits to raising your credit score are lower interest rates, lower payments and more money saved over time.

(Adapted from Michael Rupured, UGA Cooperative Extension.)


Candace Tucker is the Family and Consumer Sciences (FACS) Agent for University of Georgia (UGA) Cooperative Extension Coweta County. Her role involves providing Coweta residents unbiased, research-based information on health, nutrition, financial management, home safety and family relationships through educational programs and community outreach.

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