You can use your credit score as a red flag that will alert you to possible identity theft. By knowing what the credit score indicates you can tell when unexpected or dramatic changes occur.
A credit score is a three-digit number that creditors use to assess their risk in lending money to an individual. The credit score gives creditors a fact-based idea of whether or not a person can be relied on to pay their debts.
From a lender's point of view, some aspects of a person's bill-paying behavior and credit history will carry more weight than others. However, even though the exact equation used to determine a FICO(r) score is proprietary, the types of information and their approximate weighting have been determined.
Contributing to 30 percent of a credit score, debt level measures how much of your credit limit is in use. The closer a person is to maxing out his or her credit card account(s), the lower will be their credit score. An optimum debt level is between 30 and 50 percent of the limit. If a person's identity were stolen and expensive purchases made, this factor alone could cause the credit score to dip.
An inquiry is noted in your credit report each time you apply for credit. Inquiries constitute 10 percent of the FICO score, and numerous inquiries may mean to creditors that you are in some sort of financial trouble.
Payment history accounts for 35 percent of a credit score and includes high credit risk behaviors such as late payments, written-off debts, referrals to collections, and bankruptcies. Recent delinquencies carry more weight than earlier ones.
The longevity of the consumer credit record is another factor in the FICO score. The length of time a person has been using credit as part of their personal finance strategy counts for 15 percent of the credit score. The longer a person has been responsibly using credit, the better the score will be.
A mix of different types of credit accounts for 10 percent of the FICO score because it shows experience with managing a mix of credit. In itself, however, this factor is not significant.
The credit score is based on an individual's credit report information and provides a consistent and objective assessment of a person's credit worthiness. Developed by the Fair Isaac Corporation, the prevalent FICO credit-scoring model ranges from a low of 300 to a high of 850. However, since the credit score is only as accurate as an individual's credit report, it is important to make sure your credit report is up-to-date and accurate.