Credit Report Breakdown: How is Your Credit Rated?
You know your credit matters–especially in today’s economy–but do you know how your credit is scored?
Check it out ~ The formula for calculating FICO credit scores can be complex; but, roughly, it’s determined by:
- 35 percent = Payment history (on-time payment is best)
- 30 percent = Utilization of credit (using less than you can is best)
- 15 percent = Length of credit history (the longer the better, assuming positive action)
- 10 percent = Diversity of credit used (more is better)
- 10 percent = Recent inquiries into credit (more inquiries are worse)
Get Your Credit Information
Credit Karma (creditkarma.com) has new tools for helping consumers keep track of their credit information.
The site is fairly easy to navigate and offers a variety of tools and helpful information for interpreting the information on your credit report.
How Accurate is the Credit Score Offered?
Credit Karma calculates credit scores based on the information in your TransUnion credit report. Sound confusing? Let’s back up a few steps:
- Credit Report: This is a document compiled by three major companies in the United States, Experian, Equifax and TransUnion. You are entitled to one free report each year from each of the three companies – this report is available at www.annualcreditreport.com.
- Credit Score: This is a number derived from the information in credit reports. Lenders use these numbers to gauge a borrower’s creditworthiness before lending money. Currently, the most widely accepted credit report in this country is the FICO score, calculated by the Fair Isaac Corp. FICO scores range between 300 and 850. You are not entitled to see your FICO score for free, but you can pay to view it.
The “credit score” offered at Credit Karma, though, is based only on your TransUnion credit report and doesn’t take into account information on the other two (from Experian and Equifax).
The score you’ll receive will likely offer you a ballpark range for where you fall, but don’t assume it’s 100 percent correct.
Other Perks the Site Offers
The site may still be a useful tool, though.
It’s BBB-accredited and makes money from advertisements rather than payments from those who visit the site.
If you’re looking for loan offers or trying to compare credit cards before opening a new account, Credit Karma may be a good starting point.
It also offers a credit “report card” section, which breaks down the information you’re likely to find in a credit report.
This is useful for consumers who are interested in staying on top of their credit health but unsure how to navigate credit reports.
If your credit score is hurting because of overwhelming credit card debt, you may want to see if filing bankruptcy might be able to eliminate your credit card bills.
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