The Basics about Credit - How Its Calculated and How to Protect It

August 9, 2019

Your credit score plays a key role in your financial health and ability to make important life purchases.

Credit Score IconBelow, you will find best practices for improving and managing your credit, as well as advice on how to keep it protected from fraudsters. 

 

How are Credit Scores Calculated?

Credit Scores are based on five factors, each with their own weighting:
  1. Payment history: 35% - Improve your score by paying your bills in full and onCredit Pie Chart time each month.
  2. Credit Utilization: 30% - The amount you spend vs. the amount of credit available to you. To improve your score, stay below 30% of your credit limit and work on paying down your balances.
  3. Length of credit history: 15% - Borrowers with longer credit histories are considered less risky because there is more data available to determine payment activity. Improve your score by sticking with the same credit card or keeping older accounts open, even after you’ve paid them off. Be sure to keep an eye on associated fees.
  4. Types of credit: 10% - According to FICO, borrowers with a good mix of credit and loans are generally less risky to lenders.
  5. New credit: 10% - Each time you fill out a credit application, an inquiry is added to your credit report. To improve your score, avoid filling out too many credit applications within a short timeframe. 
 

Protecting Your Credit 

With cyber security concerns at an all-time high, it is crucial that you take the right steps to protect your credit from fraudsters. 
  • Place a free security freeze on your credit report. Security freezes restrict access to your credit report, preventing anyone, including yourself, from opening a credit line in your name. You must place and remove the freeze with each Credit Reporting Agency: Equifax, Experian and TransUnion. Remember to unfreeze your credit report online if you plan on filling out a new credit application as it can take a few days to process this by mail.
  • If you do become a victim of fraud or identity theft, take immediate action. Contact your bank and credit card issuer, as well as the credit agencies, to place your account on fraud alert or a security freeze. You could recover some of your money if you act fast!
  • Consider creating a free account with Credit Karma to manage your credit, monitor any red flags and set up alerts. 
 
For more information and to order a free annual credit report, visit: https://www.annualcreditreport.com/.    

 

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