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Understanding your credit score

Your credit rating is much more than an indication of how you manage money. At Ammerman & Goldberg “Bankruptcy” Law Office, we know that your score will affect your future financial decisions. In order to give yourself the best possible chance at securing affordable loans and reasonable interest rates, you need to know the factors that determine your credit score.

According to the Financial Industry Regulatory Authority, your score is calculated based on the following: 

  •        How long you have a history of having credit
  •        How much you owe in debt
  •        What your payment history is
  •        The type of credit you have
  •        New inquiries into your credit score

The most important of these factors, according to FINRA, is your payment history. In other words, do you make your payments in full and on time? If not, your score will be adversely affected. FINRA also points out that if you are close to your limit on credit cards, your score could be lowered. Experts recommend keeping your balance at 30 percent or less of your limit.

Having a long history of credit can help to boost your score, as will using credit responsibly. Finally, it is a good idea to stay away from opening a bunch of new credit accounts in a short period of time, as it can indicate that you may be about to take on more debt.

After evaluating these factors, your score will be generated and fall between 300 and 850. Each lender may have a different threshold for what is considered a “good” score. For example, a report from Bankrate.com recently found that people with scores of 740 or higher will secure the best mortgage rates. However, auto lenders may give the best rates to people with a 680 or higher.

Knowing your credit rating is just the start of figuring out what you need to do to improve it. For more information on this topic, please visit our page on managing your credit score.

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