According to a recent survey from Consumer Federation of America (CFA) and VantageScore Solutions, LLC, more than 40 percent of respondents incorrectly thought a person's age is among factors used to calculate a credit score. And only 18 percent understood that a low credit score on a typical auto loan would increase loan charges by more than $5,000.
Knowing the basics of a credit score is the first step to managing your credit and improving your score. Here are the five components that make up how a credit score is calculated:
New FICO Credit Scoring Rules May Positively Affect Your Score
FICO scores, credit scores created by Fair Isaac Corporation, are what 90 percent of top lenders use to help them make billions of credit-related decisions each year. Your FICO score is calculated based solely on information in consumer credit reports maintained at credit reporting agencies. Over the past two years FICO has implemented new credit scoring rules that could positively affect your credit score.
If you have a large outstanding medical bill from a hospital, even if it's been referred to collections, it will no longer impact your credit score. Under the new rules, medical bills of any size will no longer affect your score.
Paid or settled accounts with collections agencies will also no longer be a factor in your credit score. And unpaid collection accounts with a repayment plan in place will not factor into your credit score—an incentive to pay your debts even if they are old and in collections.
As of July 2017, credit reporting agencies were to start removing tax liens and civil judgements from consumer credit reports if the information did not provide complete details on a consumer, such as a person's full name, address, Social Security number, or date of birth.
If you are looking to improve your credit score, focus on paying all your bills on time, and significantly reducing your debt. These two factors together account for 65 percent of your credit score.
Want to test your credit score knowledge? Go to creditscorequiz.org.
To order your free annual credit report, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
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Do you know that payment history and amounts owed make up 65 percent of your credit score? Learn more: http://bit.ly/2xxUzkh