Knowing how credit scores are calculated can help throughout one’s life. A credit score is a three-digit number that has a long-lasting effect on one’s buying power. When applying for credit: a loan, a credit card or other sources of borrowed money, the applicant’s credit score will be checked. The higher a credit score, the better the chances of being approved.

Although there are several scoring methods, the most widely accepted one comes from Fair, Isaac and Company (FICO). FICO scores ranges from 300 to 850. Five items make up a FICO score:

• 35 percent is based on 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 is owed on car loans, mortgages, credit cards etc. The number of credit cards and if those cards are near the maximum borrowing limit will hurt the 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 the score.
• 10 percent is based on new credit. Opening several new accounts 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.

The Kentucky Higher Education Assistance Authority (KHEAA) is a public, non-profit 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. KHEAA also helps colleges manage their student loan default rates and verify information submitted on the Free Application for Federal Student Aid. To learn more, visit kheaa.com.

In addition, KHEAA disburses private Advantage Education Loans. For more information about Advantage Education Loans, visit www.advantageeducationloan.com.