Understanding Your Credit Score
Your credit report is an important aspect of your life. In addition to affecting you financially, your credit report can impact your education, career, and the interest rates lenders offer you when making major purchase decisions such as buying a home or a car. Your credit report contains a compilation of your payment and account history on all of your credit accounts to judge your credit worthiness. Your credit score is determined by factors including payment history, amounts owed, length of credit history, and frequency of new credit. Credit Scores range from 350-850; the higher the score the better!
Credit score range
Credit reporting bureaus
Consumers are entitled to one free credit report from the three major credit reporting bureaus annually:
Consumer Disclosure Center
National Consumer Assistance Center
Personal Information Solutions
Under federal law, you are entitled to a free credit report from each of the three national credit reporting agencies every year. To receive your free annual credit report, you may contact each agency individually or visit www.annualcreditreport.com, the official site to help consumers to obtain their free credit report.
Your free credit report will not include your credit score. An additional fee will be charged to view your credit score.
What your credit report contains
Your credit report is divided sections including personal Information, credit history, public records, and inquiries. It is important for you to review each section for accuracy and take action on any errors.
This section can include multiple spellings of your name or more than one social security number, usually because a creditor incorrectly reported the information. Other information in this section can include your current and previous addresses, date of birth, driver's license number, employer information, and spousal information.
This section will include information on all individual accounts, including the name of the creditors and account numbers. The entries in this section can also include:
Date account was opened
Type of credit involved
Names on the account
Total amount of loan, credit limit, or highest balance on a credit card
Balance still owed
This section will include any financially related data such bankruptcies, judgments, and tax liens. Information in this section is considered negative.
This section shows everyone who has requested to see your credit report. "Hard" inquiries are generated when you fill out a credit application, apply for a job, or apply for insurance. "Soft" inquiries are generated when lenders ask the credit bureau for lists of people who fit certain lending criteria so that they can pre-approve them for special offers.
Improving your credit score
Check your credit report annually
View your credit report at least once annually and review all included information to check for inaccuracies.
If you find an error in your report, you will need to report it to the credit bureau. You can do this by filling out the form that is included in your credit report or by filing the dispute online at the credit bureau's website.
Clear up debt
Try to pay off your debt and consolidate your credit cards into one credit account. For every new credit account open you are creating a new line of credit that could impact your score.
Pay your bills on time
One of the key factors to improving your credit score is to pay your bills on time. If you have missed payments, get current and stay current on payments to help improve your credit score.
Pay more than the minimum payment
Most credit cards require only a 2% minimum monthly payment on the outstanding balance. Pay more than minimum, as much as you can afford, and keep the balance as low as possible.
Keep balances low
Keep your balance low in relation to your credit limit. High balances can still have a negative impact even if they aren't "maxed out".
Know your limits
Only charge items that you know you can pay off each month. It is important to remember that credit is not an extension of income.
Don't open many new accounts too quickly
Opening new accounts can lower the average age of your history, which can affect your score if you do not have a larger amount of other credit information.
Learn the legal steps to improving your credit score
The Federal Trade Commission's Building a Better Credit Report has information on correcting errors in your report, tips on dealing with debt, avoiding scams and more.