Better understand your credit score

DETROIT - It's time once again for me to put on my certified financial planner hat and talk a little bit about your money.

Let's start with understanding your credit score and managing it so it works better for you.

The first thing many people wonder is why credit reporting even exists.

Credit card, mortgage lenders and auto loan companies need to know if you are a credit risk.

They use what's known as a FICO score, which is short for Fair Isaac and Company - the company that developed the computer software predicting your ability to pay on time based on your past history.

There are three credit bureaus monitoring your credit: Experian, TransUnion and Equifax.

FICO scores start at a low of 620 and go to 850. This year, the average score is right about the 700 level.

TransUnion rates metro Detroit 81st out of 143 U.S. cities with an average credit score of 743, which is actually pretty good.

There are five things used to create those scores.

First and foremost is payment history, whether you pay on time is 35 percent of your score.

Credit utilization is 30 percent, maxing out your credit cards hurt your scores.

Fifteen percent is the length of your credit history. So, a kid out of college doesn't fare so well.

Your total credit and how many types of credit you have make up the last 20 percent.

The biggest question people have is how to I fix poor credit?

The answer is simple: pay your bills on time.

If you have not been able to pay on time recently, you can fix that over time by simply paying on time and paying at least the minimum amount required.

Ignore companies promising to fix your credit. Most cant.

One of the more important things you need to do is watch your credit regularly.

You can do it for free and there are a lot of websites out. But watch out for those websites that say they are free but then charge you a monthly fee.

Websites you can use:

Here is the link to the FTC credit report info:

Here is the FTC Website with credit scoring info.

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