Understanding Your Credit Score

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By Christina Costa

Everyone in America has their personal financial history archived, compiled, and rated by the three major credit bureaus. These bureaus are Experian, Trans Union, and Equifax.

Lenders and creditors access these bureaus and your personal financial history for a fee, to help them understand and rate your credit worthiness. Understanding your credit worthiness is one of the most important things you need to know and be familiar with.

What is in your credit report? Your credit report contains your entire credit history as reported by your creditors. This may include renters, lenders, credit card companies, auto loans etc. It also contains a past history of the total credit you had borrowed and credit that has been paid off by you in the past.

Additionally, it will show your current creditors and outstanding balance, as well as your payment history.
Derogatory items are also included in your credit report and these items will severely and negatively impact your overall credit score.

Derogatory items include 30, 60, or 90 day late payments, collection accounts, charge offs, repossessions, foreclosures, and bankruptcies.

What is your credit score or FICO score? Your credit score is a numerical value ranging from 350 to 850. Prime credit or the best credit is typically rated at a score of 700-720 or more. Any score under 700 will typically cause the lender to charge you a higher rate of interest or extend you less credit.

Certain scores, especially those below 580 may cause lenders to deny you credit altogether. The better your payment history is the better your score. Paying off large items such as cars or mortgages will positively impact your score as creditors like to see major debt commitments paid off.

A high amount of revolving debt such as credit card debt may negatively impact your score, especially if you have a high DTI or Debt to Income ratio. Having more than 50% of the available balance on a credit card will also hurt your score, even if you have other cards that have no balance.

If you must carry a credit card balance, it is better to spread it across multiple cards instead of carrying it on one card. This can impact your score 20-30 points. The more you apply for credit causing "inquiries" may also negatively impact your score.

Your FICO score will actually vary by as much across all three bureaus by as much as 60 points. This is caused by regional issues as the bureaus often have better records in certain regions, as well as the fact that each bureau utilizes a proprietary algorithm to determine your score.

It is a good idea to get your credit report and your credit score on a regular basis and check it for accuracy. Inaccurate items may be removed and bad credit items may be removed by going through a letter writing process or by signing up for a credit repair program.

All in all, it is important to both monitor your credit report and work to keep your score as high as possible to avoid paying higher interest rates as you would otherwise have too. America runs on credit, so you better understand yours!

About The Author

Christina Costa, a freelance credit repair writer, recommends Equotegrabber - where you can get a free credit repair anaylsis online in seconds! Visit Equotegrabber.com