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Credit Where Credit Is Due: How Much Are You Worth and Who Decides?
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| Credit Where Credit is Due How much are you worth and who decides? By Amanda Leighty | 
| | “Most people know that their credit score affects what types of loans they can receive and at what rates,” says Lisa Brown, CEO of Tallahassee Leon Federal Credit Union, “but many people either don’t know or don’t understand how their credit score is determined.” Your credit score is supposed to reflect your ability to pay off any future debt you assume. The score is calculated based on your credit history, and the higher the score, the more confident the lender can feel that they will get their money back. | | Brown explains that, “There are a few methods for determining your credit score, but the FICO method is probably the most well-known and widely accepted method.” Under the FICO method, there are five factors that are used to determine your score—payment history, outstanding debt, length of credit history, new credit accounts and applications, and types of credit. | 
| | Payment History: Your payment history takes into consideration how promptly you’ve made payments on existing credit, whether you’ve made payments late, whether you’ve declared bankruptcy, and whether you have liens in place. The negative infractions are not weighted equally—the more severe, the more your credit score is penalized, and the more recent the infraction, the larger weight it will carry. Overall this factor is worth 35% of your credit score, the largest percentage of the five. “One way we can help people improve their credit score is to get them on an automatic payment schedule,” says Brown. “TLFCU can set up a direct deduction from your account so that your bills are never late.” Outstanding Debt: This section takes into account how much you owe on credit accounts, including home or car loans and credit cards. With credit cards, the outstanding debt is compared to the total credit card limit. The closer your balance is to the limit, the worse it is for your credit score. This factor accounts for 30% of your credit score. | | 
| “Consolidating several debts into one payment can be another effective way to manage your credit problems,” explains Brown. “Not only will you have less payments to stress over, but you can often get a lower payment and a lower interest rate, which means you pay down the principal of the debt more quickly. Tallahassee-Leon has several options for debt consolidation.” | | Length of Credit History: The length of your credit history is a factor because it shows lenders how much experience you have in borrowing. Someone who has had loans in the past generally has a better understanding of how to budget more appropriately and account for the payment at the end of the month. This factor enables lenders to make more accurate predictions of your future payment behavior. The longer you’ve had a credit account, the better it is for your score. This factor accounts for 15% of your credit score. New Credit Accounts or Applications: How recently you’ve opened an account or applied for more credit also affects your overall credit score. This is a factor because doing either implies that you need more money, which in a lender’s eyes can be a warning sign. However, this only accounts for 10% of your total score. | | Types of Credit: There are two types of credit—revolving and installment. Revolving credit accounts are those that have a set credit limit, but balance and payments fluctuate over time. The best example of revolving credit is a credit card. Installment accounts are those that have a fixed term and payment, like mortgages and car loans. |  | | Those who have both types of credit in their credit history are usually seen as less risky because they have shown their ability to handle both types of accounts. This factor also accounts for 10% of your credit score. Brown explains that, “These factors are combined and determine where you land on the 300-850 credit score spectrum.” She also added that, “You can find out what’s in your credit history once a year for free with Experian, Equifax, and TransUnion; however, you will have to pay a fee to receive your actual credit score. You can also drop by TLFCU for a free credit review any time, plus get someone to walk you through your score and how you got there.” Now that you know how your credit score is determined, you can work toward building credit and raising your credit score. Come in to Tallahassee-Leon Federal Credit Union – your hometown credit union for the past 75 years – and speak with one of our helpful member service specialists . Together, let’s work to make you better off financially tomorrow than you are today. | | 
| Stop by Tallahassee-Leon Federal Credit Union (www.TLFCU.org), the oldest credit union in Leon County, and their helpful member services representatives will be happy to talk to you about how to improve your financial future. | |  Read Our Other Articles by Clicking Here! | For branch locations and more information about Tallahassee-Leon Federal Credit Union, visit TLFCU.org. Or “LIKE” us on Facebook at Facebook.com/TLFCU.
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