Understanding how credit bureaus determine your credit score can help you maintain, build, or even rebuild your score, which is especially important as millions have felt the financial impact of the COVID-19 pandemic.
Chartered Financial Consultant John Caserta explains how credit scores work and what you can do to manage yours during this time. Credit bureaus calculate your FICO score, which can range from 300-850. The higher the score, the better credit you have, and the easier (and less expensive) it will be for you to borrow money for a large purchase.
Caserta says it’s normal to see a slight difference in scores among the three credit bureaus, which include Experian, Transunion, and Equifax. Caserta explains what five factors used to calculate a FICO score, and each is weighted differently:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- Credit mix – 10%
- New credit – 10%
Caserta suggests these tips if you’re trying to build credit:
- Put utility bills in your name and stay current.
- Get a secured credit card where you draw against money that has been deposited in an account.
- Become an authorized user on an existing card. But be careful, you may end up being responsible for the other person’s obligations.
- Get a store credit card that you can use for purchases either at the specific retailer or for all purchases. And while they can come with incentives such as discounts on your initial purchases, the interest rate on balances you carry can be far greater than that discount you receive.