Credit score is a 3 digit number that speaks of your creditworthiness - the way you've managed credit and bills in the past. The score helps lenders/creditors judge whether you're a potential borrower. Usually credit scores range from 300 to 850. In this article on credit scores, you can check out the topics given below:

A good credit score is the one that's above 700. Anyone having credit scores in the 700s and above range is likely to get credit at better rates of interest.

However, anyone with low credit scores, that is, in the range of 500-600 is considered as high risk to creditors. Those having low credit scores are usually charged high rates of interest. Depending upon the market scenario, they may not be able to get credit/loans due to low credit scores.

The FICO score is the most common credit score used by creditors/lenders in order to evaluate a borrower's creditworthiness. It is developed by Fair Isaac Corporation. However, scores offered by each credit reporting agency (CRA) or credit bureau may vary because not all creditors report information to every CRA. Moreover, the credit scoring models used by the bureaus slightly differ from one another.

The FICO scores offered by the 2 CRAs namely Equifax and TransUnion are known as Beacon and Empirica. Consumers can get these scores online from MyFICO. Experian, another CRA also offers FICO score but consumers can't access it from MyFICO. They can get credit scores based on Experian data available on Experian's website. However, the Experian FICO scores are available only to lenders.

What factors affect credit (FICO) scores?

1. Payment history (35%): This includes information on -
   • How you've paid credit cards, installment loans, mortgages etc.
   • Adverse public records such as bankruptcy, liens, collections
   • Time of past due items and adverse public records
   • Accounts paid as agreed
2. Amount you owe (30%): This provides details on -
   • Number and type of accounts you owe
   • Ratio of balance to total credit limit (revolving accounts)
   • Ratio of balance to original loan amount (installment loans)
3. Length of credit history (15%): This includes the time period since you've opened different types of accounts.
4. New credit (10%): This provides details of -
   • The accounts you've recently opened
   • Number of recent credit inquiries
   • Time since recent credit inquiries
   • Time since accounts opened recently
   • How you've rebuild credit after past credit problems
5. Credit/loan types used (35%): This factor includes the different types of credit/loans you've opted for.

What are the ways to improve credit score?

You can improve credit scores if you're able to keep factors like payment history, amount owed, length of credit history etc in good shape. This is what credit score repair is all about. Given below are 6 ways to improve credit scores/FICO scores.

1. Avoid missed/late payments: A 30-day late payment may reduce your credit score by 50 points. Your account may be sent to collection due to repeated late/missed payments.
   

   Even if an account is in collection, pay it off and have the status updated on your credit report as "pay for delete" or "paid collection" after negotiating with the creditor. You may even consult a credit counselor if you're unable to pay. The counselor will prepare a budget for you so that you can allocate funds for each debt payment.

   However, the best way is to avoid late payment is to set up an automatic bill pay through your bank account. But make sure that the funds are being processed and sent to your creditors.

2. Pay off debt instead of moving it around: Maintain low balances (around 10% of the available credit) on your credit cards and revolving accounts. It's better to pay off debt rather than move it from account to another. This is because when you owe the same amount of debt but have fewer accounts open, it lowers your score further.
   

   Moreover, if you move around debt and close unused accounts within a short time, it reduces your available credit limit while your debt balance becomes higher. Also, the length of your credit history is reduced. This affects your debt-to-credit utilization ratio, which should be kept around 30% of your credit limit.

   However, when you don't close accounts, you need to keep them active. This can be done by making a purchase or two using the cards every 6 months. This will improve your credit utilization ratio and help you in credit score repair.

3. How to shop for new credit: Try to shop for new credit/loan within a short period of time. This is because creditors/lenders may pull your credit report and generate inquiries which affect credit scores.
   

   Usually, for mortgage and auto loans, all inquiries or credit pulls made within a 30-day period is treated as single inquiry. So, the sooner you complete shopping for new credit, the better it is for your score. And, make sure that you don't open new accounts just to have a better mix of credit, because if you fail to manage your credit, it will have a negative effect on your credit scores.

   Moreover, too many new accounts opened at once will raise your available credit limit compared to the credit used and thus reduce your score. Besides, new accounts will lower the average account age thereby reducing your score if you have not taken other types of credit.

4. Authorized users: When you add an authorized user to your credit card account, make sure that the user doesn't overspend. Being the principal card holder, you'll have to make the payments and in case you can't afford it, your credit score would get the hit along with that of the authorized user.
   
   
5. Avoid store cards and small debts: Getting too many store cards isn't a good move if you're going for credit score repair. Such cards are open lines of credit and too many of them are considered as risky by credit bureaus, especially if these are not affiliated to a national creditor (such as MasterCard, VISA etc).
6. Change in names: Let's say your name is Adriana J. Smith and that's how it's reflected in your credit report. If you change your name and drop the &"J" while applying for credit, then the credit bureau will prepare a separate credit report for you even though your address may remain the same. So, you need to notify the creditor as well as credit bureau if there's any name change.

Are free credit scores available?