Most people these days realize that their entire financial history is chronicled in a detailed credit report. Almost 70% of people, however, don’t realize that the information that those detailed credit reports contain is then calculated into a three digit credit score. You can have a pretty good repayment history on a lot of items, but it doesn’t take too many negative reports on your credit report to make your credit score drop like a heavy rock thrown into a pond. In fact, some negative events can take up to 160 points off of your credit score. That’s definitely something that you don’t want to have happen to you without your knowledge… right? But that can happen to you if you don’t realize the importance of your credit score.
Why is Knowing Your Credit Score Important?
There are two important reasons why it is important to know what your credit score is at minimum on a month-to-month basis:
because lenders will generally grant new lines of credit based off of your credit score & not off of your credit report; and
knowing what your baseline score is will help you be able to determine if an identity thief is prowling around.
Your credit score, which is a number that falls between 300 – 850, is a gauge on the overall health of your financial decision-making. A higher credit score will bring you better interest rates, friendlier repayment terms, and the ability to borrow more money. A lower credit score can result in higher interest rates, rigid repayment terms, and potentially a lack of ability to borrow any money whatsoever.
What is a Good Credit Score?
So what is a good credit score? Anything over 650, as for a vast majority of lenders, this is the number where better rates and terms come into play. Yet remember – a perfect score is 850, so there is 200 points of improvement to be made. The good news is that the average credit score in the United States is 720, so you’ve likely got good credit and you don’t even know it.
When an identity thief strikes by opening up new lines of credit, maximizing those credit lines, and then failing to pay anything on them, your credit score will go down. If an identity thief gets a mortgage in your name that is then foreclosed upon, your credit score could go down as much as 160 points. A false bankruptcy in your name because of an identity thief could result in a credit score reduction of 100 points. That’s why detecting any fluctuation early, even if only a point or two, is so critical to preventing the damage that an identity thief can do.
What Makes Up a Credit Score?
Knowing what makes up your credit score helps you to be able to know how you can improve it… and know where identity thieves might be chipping away at you if your score is dropping unexpectedly.
35% Payment History: Having a history making of payments on time and not having any missed payments on all of your credit lines is one of the most important items lenders look at on everyone’s credit history.
30% Amount Owed: This looks at the amounts you owe in relation to the total amount of credit that is available to you. People who are closer to maxing out all their credit limits are deemed to have a higher risk of making late payments in the future, and this can lower their credit score. Not having any credit activity on open credit lines for a lengthy period of time can have the same effect.
15% Length of Credit History: A credit report containing a list of accounts opened for a long time will always help your credit score. Having a lot of new accounts opened in the last few months will not.
10% New Credit: Opening several new lines of credit in a short period of time can lower your credit score twice. Multiple credit report inquiries can represent a greater risk because it appears that you may be attempting to obtain new credit, but this does NOT include any requests made by you, an employer, or by a lender who does so when sending you an unsolicited, “pre-approved” credit offer. Also, to compensate for rate shopping, the credit score counts multiple inquiries in any 14-day period as just one inquiry instead of multiple inquiries.
10% Types of Credit in Use: Is all of your credit in credit cards? Or do you have a mortgage, a vehicle loan, a department card, & a couple credit cards? More variety will equate to a higher credit score.
How Can You Monitor Your Credit Score?
There are two very easy ways to monitor your credit score. You can:
sign up for an identity theft protection service plan that includes credit score monitoring; or you can pay one of the three major credit bureaus to access your credit score and your credit report.
Now some states do offer their residents the ability to access their credit score for free, in addition to the free credit reports that you are entitled to under Federal and State laws. Be sure to check your local resources to determine what kind of products are available in your area and what you may need to do to be able to access them.
By monitoring your credit at least monthly, you’ll be able to tell if your credit score is doing something that it shouldn’t be doing, and knowing what makes up your credit score can help you to boost it higher. Identity thieves are counting on the fact that you don’t know this information… but they do.
Mike Carter writes about consumer credit for SIF. He has been a speaker at Financial Freedom Summit in California. His work has appeared in The New York Times, Washington Post, Los Angeles Times, MarketWatch, USA Today and MSN Money, and on the Associated Press wire. At one point he held a perfect 850 credit score and he is a serial mortgage refinancer.
Lenders look at credit scores as a means to judge an individual’s creditworthiness. In today’s market, it may look like everyone is taking a hit to that all important credit rating. It’ll likely come as a surprise to you that some states are do better than many others. Dwelling in a specific locale does not mean you’ve got perfect credit, yet. Understanding which says top the list will provide you with a concept of the manner in which you compare together with the individuals residing around you.
What Variables Determine a State’s Typical Credit Score?
Just what variables can alter the common credit rating of a state’s residents? There really are a number to contemplate. Joblessness is among the top concerns. States with better employment numbers often have residents using a healthy FICO score. Being jobless forces some visitors to rely greatly on credit to fund essentials, and that could drive their scores down. Foreclosures inside the state are another prime concern. Other factors include:
- Typical charge card payment history
- Natural disasters which affect the state market
- New companies
- Home marketplace
- Insolvency rate
- Warm weather locations often endure more than states that face the chilly each year, also. This might take part because of their tourism-based markets. As a country, Vantage Scores average from 707 to 785, but by state, there’s a broader distribution.
A Review Of the Top Ten
10. Iowa – With a score that sits around 771, Iowa makes the most effective 10. Residents of Iowa tend to get low bank card delinquencies, as well as the state in general has low joblessness. Iowa does take a moderate ding to get a greater-than-average foreclosure speed. It had been enough to motivate the state right down to number 10.
9. Hawaii – Hawaii is tied with Wisconsin and Connecticut for average credit rating, with all three coming in at 772. Hawaii is the exception to the warm weather rule. While this sunlight state is famous for the high expense of living, it also hosts among the greatest amount of millionaires per capita in the U.S.
8. Wisconsin – Coming in at 772, Wisconsin boasts a gross state product of $248.3 billion. An adverse element in its credit rating is high joblessness. The Bureau of Labor Statistics reports the speed in Wisconsin hovers around 6.3, but that’s a large progress on the 2010 amounts.
7. Connecticut – The per capita income in the area of Connecticut is among the elite in the nation, but the unemployment rate runs high. In cases like this, the one positive and one negative cancel each other out to provide the state an average credit rating of 772.
6. Massachusetts – With a score of 773, Massachusetts is number six on the top ten list. Like Connecticut, Massachusetts increases points depending on its high personal income – it’s the 3rd-wealthiest state in the union. It’s also home to 13 Fortune 500 firms, making it-one of CNBC’s top states for company in 2010.
5. North Dakota – Back in 2011, this was the state that topped the set of greatest credit scores. These days, it’s still among the top competitors based on all of the credit metrics. North Dakota reports the lowest unemployment rate in the state – only 2.7 percent – and keeps low bank card delinquencies, giving it an entire credit rating of 775.
4. New Hampshire – Linked with North Dakota is New Hampshire. Like its New England neighbors, New Hampshire gains points for high personal income. It ranks number seven in the nation. Unlike Massachusetts and Connecticut, it’s a fair unemployment rate, also – well under the national average.
3. Vermont – The state of Vermont ties with South Dakota for time slot two and three. Vermont has steadily kept low foreclosure speeds. The national percentage of foreclosures is around one in every 2,370 home units. In Vermont, that amount is closer to one in every 39,000 units. Vermont ranks high in virtually every measurable class, giving it an average credit rating of 777.
2. South Dakota – Another state that produces the list every year, South Dakota additionally boasts a typical credit rating of 777. The state keeps a reduced unemployment rate, tied with Nebraska at 3.6. Additionally, it makes the very best six for high scores in most quantifiable groupings.
1. Minnesota – Topping the list by the end of 2013 was Minnesota. The residents of the state have a few of the best credit ratings in the country. United, their average sets Minnesota in the lead using a score of 785.
Fico scores transform year to year for every state. In 2011, North Dakota was on top of the stack, followed closely by Vermont, South Dakota and Nebraska. In 2013, Nebraska did not even make the list, due in part to a large number of reported personal bankruptcies.
Going to a different location in the country is most likely not the solution to boosting your credit rating, but understanding your state average does help provide some perspective. It requires work to build it up again when your score has dropped. The important thing for rebuilding a faltering credit report is an all-inclusive credit repair solution. It begins having an overview of your payment history and setting FCRA and FACTA laws to meet your needs, in order to construct better credit opportunities wherever you reside
Tim is a freelance journalist who writes on everything from personal finance to investing and credit. He spends his spare time traveling, paddle boarding and working with local charities. He has a B.A. in English Literature from Oklahoma State University and lives with his wife and children in Phoenix, Az.