Understanding Your Credit Score and Credit Report

You've probably heard financial experts say it's important to know your credit score and get a copy of your credit report every so often. But if you're like many people, you may not be exactly sure what this information means when you get it. This step-by-step guide lays out what you need to know about your credit report and credit score.

What Is a Credit Score?

In a nutshell, your credit score is a measure of your financial risk. There are different credit scores out there but 90 percent of banks use the FICO scores that range from 350 to 800. The higher your credit score, the more favorably banks view you. As a result, having higher scores results in better interest rates and terms on financial products. It can also have an impact when you apply for certain jobs or try to rent an apartment.

What's in a Credit Report?

So, how do they determine what your credit score will be? It's based upon the information in your credit report, which is basically a history of your spending and borrowing. You'll have to provide your name, address, social security number, and birthday. Reviewing this information can help you set up a credit management plan and prevent identity theft. Improving your credit history can also help when you apply for a credit card debt consolidation loan, mortgage, or other financial products. Your credit score is based on:

• The types of credit you use
• The amount owed on those accounts
• The length of your credit history
• Whether you have any new credit lines
• The payment history for your credit cards and other debt.

In earlier times, a bank or retailer would call the creditor you listed in your form or application to check your “credit-worthiness”. However, now banks and retailers rely only on these reports to decide on extending credit to you. It is very important thus, that you check your credit report every once in a while.

Repair Your Credit

Your report may also list your employment history, tax liens, foreclosures, garnishments, or bankruptcies. The more negative incidents on your report, the lower your credit score will be. There are agencies which can help in repairing your credit score credit score quite successfully and you should consider these as your first option when faced with a bad credit situation.