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A credit score is more than just a number; it’s a snapshot of a person’s financial responsi­bility. In order for someone to maximize their credit score, they must know how it works. Here are four facts about credit scores people should know.

  1. Credit reports are not the same as credit scores. A credit report, which starts when some­one takes out a loan or opens a line of credit, is a detailed view of their loan amounts, payment history, and any open accounts. The credit score is derived from the credit report, but it is not included on the report. Re­ports can be checked for free at www.annualcreditreport.com; however, fees may be applied to view credit scores. Websites like www.creditkarma.com offer credit score viewing for free. Ad­ditionally, credit scores can be found on credit card statements.
  2. Credit scores are made up of five different factors: new credit, types of credit, length of credit history, amount owed, and payment history. Some of these factors are out of people’s control. The length of credit only accounts for 10% of the score.

What really matters are the amount that owed (30%) and payment history (35%). To maximize what is within con­trol, do not take out more loans or charge more on credit cards than what is absolutely needed. Also, it is wise to always pay on time.

  1. Credit scores range from 300-850. A score below 620 is considered risky, a score above 700 is considered good, and a score of 750+ is excellent. Low scores indicate risk to lenders and may result in being denied a loan or getting stuck with a high interest rate. High scores show financial responsibility to lend­ers.
  2. The credit score is not only considered when applying for a loan. Other organizations and people such as landlords, insur­ance companies, phone and in­ternet providers, and even em­ployers may look at credit scores.

What they want to know is how financially responsible peo­ple are and how dependable they are with paying on time.

This doesn’t mean that someone will be denied an apartment, but they may have to come up with a larger down payment than someone with an excellent credit rating.

Although credit scores may feel overwhelming, it is best to fully understand them in order to receive a high credit score.

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