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Credit score basics explained

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Students should be familiar with what their credit scores mean and the Kentucky Higher Education Assistance Authority, of KHEAA, has provided information that should help students in that effort.

Your credit score is a three-digit number that has a long-lasting effect on your buying power. When anyone applies for credit, his or her credit score will be checked.

The higher your credit score, the better the chances you will be approved.

Although there are several scoring methods, the most widely accepted one comes from FICO. Your FICO score ranges from 300 to 850.

These items make up your FICO score:

• 35 percent is based on your payment history. Early payments will have a higher number than on-time payments, which will have a higher score than late payments.

• 30 percent is based on outstanding debt. This outstanding debt is how much you owe on car loans, mortgages, credit cards, etc. The number of credit cards you have and if those cards are near the maximum borrowing limit will hurt your score.

• 15 percent is based on the length of time you have had credit. The longer you have been borrowing money and paying it back in a timely manner, the better your score.

• 10 percent is based on new credit. If you have opened several new accounts, that will have a negative effect on your score. Also, the more inquiries on your credit report in a year, the lower your score.

• 10 percent is based on the types of credit you currently have. It helps to have a mix of loan types. If you have a credit card, an installment loan will even the credit out.

KHEAA is a public, nonprofit agency established in 1966 to improve students’ access to college. It provides information about financial aid and financial literacy at no cost to students and parents.

The association also helps colleges manage their student loan default rates and verify information submitted on the Free Application for Federal Student Aid or FAFSA.

To learn more about the authority, visit www.kheaa.com.