Understanding Your Credit Score
Most people are aware of the importance of their credit score, but how many really understand what it is and what it does? Understanding your credit score can be just as important as having a good one. That is especially true if you have a less than excellent credit score, since there are steps to improve it over time. Here are the basics you need to know in order to help you understand your credit score:
What is it?
Simply put, your credit score is a collection of information about your financial history, focusing especially upon how you have handled credit in the past. That information is then translated into a number, with anything below 600 indicating a high credit risk. The best credit scores are considered those over 800. Anyone between 600 and 800 is potentially eligible for credit on a case by case basis. These number guidelines are not rock solid, under certain circumstance someone with low credit can still be approved and those with high credit may be denied. It all comes down to the specific details of you as an individual, with your credit score often being just one important factor that is considered.
Who gathers this information?
There are three main credit reporting agencies — Trans Union, Experian and Equifax. These agencies monitor all of the major lending activity in the United States and compile the data needed to create the number that will best reflect your financial reliability. There are also specialized credit agencies that reflect specific economic activity. For example, some businesses keep special credit reports on their own customers, or on major companies that they deal with in their particular field of business. In general, however, when someone refers to a credit report, they usually mean the broad reports of the three main agencies.
Who has a credit report on them?
Virtually everyone has a credit report being kept on them if they have ever applied for a credit card, taken out a student loan or applied to borrow money for a car or house. These reports are sought out primarily by the people you interact with financially, such as landlords, government agencies, potential employers and even car insurance underwriters. In other words, anyone who wants to try to predict how reliable you will be in meeting your financial obligations based upon how well or poorly you have met those obligations in the past.
What do they want to know?
What people and organizations want to about you are such things as how promptly you pay your bills, the number of credit cards you have and how much debt you already owe. These are all essentials factors they will want to consider before entering into a relationship with you that will require them to rely on your ability to pay and your fiscal responsibility. Your credit report does not include such information as checking or savings account information, or your race, gender, religion, nation of birth, political activity, criminal record or medical history.
What if you have bad credit?
If you have been refused credit or some other service because of your credit report, the first thing you need to determine is whether the report is accurate. That means checking your report at least once a year and getting any incorrect additions removed. Errors can have an effect on everything from your level of car loan payments to whether you get a certain job. Don’t let inaccuracies in your credit report hold you back unjustly!
What if the harmful information is accurate?
Fortunately, whatever you’ve done wrong in your financial past won’t haunt your credit record forever. Most bad marks are considered not relevant after seven years and are then erased. Some very serious financial failures, such as major forms of bankruptcy, may last ten years. But changing your financial behavior today will always yield better credit scores in the future.
