While some of this information is self explanatory, some of the other aspects, especially your credit score, are a bit of a mystery to most consumers. Few people know their credit score or understand how it is calculated. Additionally, most people are unclear about how their behavior can affect their scores.
The majority of people understand the basics, like failing to make a payment will make your score go down, but there are a number of complexities that trip up the average consumer. If you pay your debts on time, don’t carry too much debt on any one card, don’t close older accounts unless absolutely necessary and only apply for new credit when you have to you will generally be in good shape. However, it is important to keep yourself informed so you can maintain a credit score that accurately reflects your consumer status.
Your credit score is determined by an algorithm developed by the Fair Issue Corporation (hence its other name of FICO score). Since its inception, three corporations, called “credit bureaus” specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion. While, the exact formula used to calculate your credit score is a tightly guarded industry secret, these companies provide general guidelines about financial behavior that can affect your credit score. When calculating your score, the basic formula includes:
Ed-Jack Dvorak is National Affiliate Liaison at Credit Dr., a national credit restoration company. He works with clients and creditors to improve credit profiles.