A while back reporting about life on this side of the water, I mentioned the way a person’s credit history and score is built. As a couple of comments indicated and I heard it elsewhere that it was not the complete story, this is how it actually works:

A credit score is a numeric value between 300 and 850 here is the States. This scoring system which is the most widely used was developed by FICO, Fair Isaac Corporation and it tells a lender how much of a risk you are to be able to pay back the loan as agreed. The higher number the better score.

Once you’ve opened a credit account, the issuer sends periodic reports to three national credit reporting agencies — Equifax, Experian, and TransUnion — about the status of your account. They show whether you are paying on time, the amount of your balance, and how much your limits are.

The key to managing and maintaining credit score is understanding the following five factors that go into calculating your FICO score.

1. Payment history (35%) - Paying your bills on time is the best thing you can do for your rating.
2. Outstanding debt (30%) - i.e. if you have credit cards you’re close to maxing out, that doesn’t help your FICO score
3. Length of credit (15%) - The longer you’ve had an account and handled it well, the better.
4. Credit mix (10%) - Having a mortgage, a car payment, and student loans is preferable to having just credit cards.
5. Searches for credit (10%) - FICO research has shown that a flurry of simultaneous applications for credit indicates an unsettled, and risky, financial situation.

And once a year you can request a free credit report from www.annualcreditreport.com or by calling 877-322-8228. My source for all this info? Reading an article in Stages magazine.