Securing Your Credit Records: Tips for Protecting Your Identity

Credit scores are important. They affect a person's ability to qualify for a loan and what interest rates they will be offered. Having a good credit score is essential for a healthy financial life. However, many people are unaware of how their credit scores are calculated and what factors are taken into consideration. In this blog, we will discuss how credit scores are calculated in the United States and what factors are considered.

How are Credit Scores Calculated?

In the United States, credit scores are calculated using the Fair Isaac Corporation's (FICO) scoring system. This system uses five factors to determine an individual's credit score. These include the following:

Payment History: This is the most important factor and accounts for 35% of an individual's credit score. Payment history is determined based on whether an individual has paid their loans, credit cards, and other bills on time. Late payments have a negative impact on an individual's credit score.

Credit Utilization: This accounts for 30% of your credit score and refers to the amount of credit you have used compared to the total available. A lower credit utilization indicates a higher credit score.

Length of Credit History: This accounts for 15% of your credit score and is determined by the length of time an individual has opened and maintained accounts. A longer credit history results in a higher score.

Types of Credit Used: This also accounts for 15% of your credit score and is determined by the type of credit accounts an individual holds. Having a variety of credit accounts (such as credit cards, student loans, car loans, etc.) shows that you can manage different types of debt and has a positive impact on your credit score.

New Credit: This accounts for 10% of your credit score and measures the amount of new credit an individual applies for. Applying for too much credit can have a negative impact on your score.

Conclusion

Understanding how credit scores are calculated and the factors that are considered is essential for anyone looking to establish or maintain a good credit score. By making timely payments, managing your credit utilization, and understanding the types of credit used and new credit factors, you can achieve and maintain a healthy credit score. It is important to remember that credit scores can be impacted both positively and negatively, so it is important to monitor your credit and make informed decisions to ensure you maintain a good credit score.