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A credit score is a three-digit number, roughly between 300 and 800, that tells lenders whether you are creditworthy. Each time you borrow money, the lender reports your payment record to one or more credit bureaus. The credit bureas take this information and convert into a score. You don't have a single credit score. You have at least three. Each of the main credit bureaus -- Equifax, Experian and TransUnion -- calculates a slightly different credit score. These scores change to reflect your borrowing and repayment activity.
Calculating a Credit Score
You cannot accurately calculate your own credit score. The credit bureaus use complex formulas that are a closely guarded secret. However, certain types of information go into the calculation. Approximately 35% of the score is made up of your repayment history. If you've missed a few payments or were late in making them, your score will suffer. Another 30% reflects your total debt. 15% is the length of your credit history, and 10% is any new credit applications. The remaining 10% is determined by various other factors, including types of credit.
Finding Out Your Credit Score
You can get a free copy of all three credit reports once a year by going to AnnualCreditReport.com. This is the official website, authorized by the three credit bureaus. These free credit reports will give you an idea about the strength of your credit history, but they will not contain the actual scores. You can get the scores directly from the bureaus via their websites. You will have to pay
a fee each time. If you are in the process of applying for a mortgage, you can also request the score from the lender.
Raising Your Credit Score
The easiest way to raise your credit score is to maintain a good credit history. This means making payments on time. A late payment is almost as bad as a missed one. Make sure you pay at least the minimum payment each month. You can also raise your credit score by paying down your debts and by diversifying the types of credit you have (credit cards, store cards, mortgage, loans). Do not cancel all of your old credit cards once you have paid off the debt. Having older cards lengthens your credit history.
The quickest way to raise your credit score is to fix any errors that you find on your credit report. Even a small mistake can hurt your score. If you see something on your report that isn't right, file a dispute with the credit bureau on its official website. The bureau must investigate and get back to you within 30 days. If the bureau agrees with you, it will change the erroneous information. This can improve your score in as little as six weeks.
Lenders report to credit bureaus every one or two months. If you've been paying down your debt, your score should reflect this within two or three months. It takes longer to raise a score simply by keeping up with monthly repayments. However, if you are conscientious, you can still improve the score within a few months.