Tuesday, January 15, 2008

How to Understand your Credit Score or Read your Credit Report


How to Understand your Credit Score or Read your Credit Report? Most people do not understand what their credit score is, or what it means. However it is pretty simple once you know the basic facts outlined in the article.

You will find many other useful links on this page as well.


Difficulty: Moderately Easy

Things You'll Need

  • Your credit report
  • Your credit score from your credit report



Step One

There are three main credit report agencies/bureaus: Equifax, Experian, and TransUnion. You need to first find out what score they are reporting.

Step Two

Once you get your report you will see a score somewhere between 300 being the lowest and 850 which is the highest.

Step Three

Your credit score or sometimes referred to as your FICO score. This number shows how likely it is that you will pay back a loan on time according to algorithms created by the credit bureaus.

Step Four

Credit scores of 680 – 700 and above are usually considered to be good. Scores of 700 – 760 will usually get you better rates on big loans. Score of 760 and above are considered the best credit risks.

Step Five

Under the Fair and Accurate Credit Transactions Act , you can obtain one annual FREE copy of your credit report. For more information go to www.annualcreditreport.com or call 877-322-8228.

Step Six

Once you know your score, you can follow these tips from myFICO to improve your rating:

* Pay your bills on time. Delinquent payments can have a major negative impact on your score and the longer you pay your bills on time, the better your score. For example, someone with an average credit rating of 707 can raise their score by as much as 20 points by paying all their bills on time for one month.

* Keep balances low on credit cards. High outstanding debt can affect your score. Maxing out your credit cards could lower your average score by as much as 70 points.

* Don't open a number of new credit cards that you don't need. New accounts will lower your average account age, which could actually lower your score by up to 10 points.

* Have credit cards - but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

* Closing an account doesn't make it go away. A closed account will still show up on your credit report and may be factored into the score.

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