Credit Score

MoneyWatch for December 2008
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"Credit scores have become one of the most important numbers in the lives of Americans,” says Stephen Brobeck, executive director of the Consumer Federation of America.  Banks, credit card companies, insurance companies, and even some employers look at a person’s credit score to evaluate financial responsibility.  This evaluation has a major impact on the decisions (e.g. interest rates) that an organization makes about an individual.  Knowing how a credit score is calculated can help you improve your score, and ultimately, your standing in the financial world (Source: U.S. News and World Report).

Here is the breakdown of how credit information is weighted in the calculation of a credit score. (Source: Cuyahoga County Treasurer)

Payment History (35%)
Do you pay on time or are you late? Have you ever had an account referred to a collection agency? Have you filed for bankruptcy?

Amounts Owed (30%)
The amount of debt or money you owe is evaluated as compared to your credit limit. If you owe close to your credit limit, it could have a negative impact on your score.

Length of Credit History (15%)
The longer you have had credit, the more points you get if you have a good track record. This means paying on time and keeping your credit balances low.

Types of Credit Used (10%)
Different kinds of credit, such as credit cards, mortgages, and car loans show how you handle money. But having too many credit card accounts may have a negative impact on your credit score.

New Credit (10%)
Rate shopping for the best mortgage rate or car loan will not hurt your credit rating. But applying for too many credit cards or opening multiple accounts may have a negative impact on your credit rating.

Click on these links for more information and resources on understanding your credit score.

Local
Cuyahoga County Treasurer: What is a Credit Score

National
My Fico: Credit Education Center
US Department of Treasury: Control Your Credit
Sallie Mae: The Ins and Outs of Your Credit Score
US News and World Report: Credit Scores Grow in Importance
MSN Money: Credit Score Estimator

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Research assistance for MoneyWatch is from Cleveland State University Nance College of Business Administration. Information on the Nance MBD program is available here.