Credit Reports and Credit Scores Serve as the Barometer of Your Credit Capacity

08/30/2007
Credit History

The number that is most important to almost every USA, UK or Canadian is not their bank account number, not their social security number and not even their phone number. The most important number to these people is their credit score! Even though this number dictates how people live, what credit cards they can own and so forth, many people do not even realize it! Your credit score will determine the type of car you drive and the interest that you pay on its bill. There are ways you can keep track of this score however and make sure that you are staying on track- to keep everything else in your life on track!

First, let's define what your credit score really is and what it is about. Pretty much, your credit score is a number rating that reports how well you pay your bills (on time or not?), the amount of debt you currently have and the forms of credit you use and have used recently. Your credit report is a vast database that records your whole credit history- scary huh?

Before we go into the different parts that make up your credit score, let's first see how your credit information is figured. All of your lenders, vendors and past landlords that you use to make financial exchanges on a regular basis with report on your payment history to one of several credit reporting agencies. These agencies have none of your information on your race, salary or other personal data- just your payment history.

Next, all of this information is sent to one of the three national credit bureaus. The three bureaus are Equifax, Trans-Union and Experian. These bureaus take your information and make them into what is called a credit report. In your credit report is your credit score which becomes available to future lenders. All of this data gives companies that will work with you in the future a chance to see how well you have been paying things off currently.

So how exactly is your credit score figured out? Your score is generated by a number of different things: payment history, your current amount of debt, your credit histories length, what types of credit you have from credit cards to loans. What makes up the bulk of your credit score is how much debt you owe and what your payment history looks like.

Your credit score is then used to help you receive loans and better credit cards. The higher your credit score the better your chances are of getting what you want. If you have excellent credit then it will be displayed in your high score and lenders will know you are reliable in paying off your debts. In contrast, if you have bad credit your low credit score will scare off potential lenders.

Many different lenders will look at your credit score in different ways however. For example, if you are applying for a mortgage loan you may be able to get away with a bad credit history - as long as your current history has been good. Your current standing is often much more important to a lender than where you were several years ago. However, some lenders will look at an uneven credit history and turn you down. It depends on which lenders you are dealing with when they look at your credit score.

Now that credit scores and credit histories have been defined in both their usage and their definitions we can answer the question everyone wants to know- how to make your credit score work in your favor?

Just by having common sense and by taking some of the steps below seriously you can make your credit score work in your favor.

• Pay your bills on time. The number one most important thing an individual can do is pay their bills on time. If you fall behind get some help from your credit card company.
• Keep your balances as low as possible. The more debt you have under your name the worse it will be for your credit score so make sure you keep your credit card balances low. A good rule of thumb is to make sure you do not exceed 2/3 of your credit limit.
• Don't let too many companies view your credit report. Even if you have excellent credit it won't look good if you have companies constantly looking at your credit report. While it is necessary for some companies to view it once in a while don't make a habit of letting them see it.

If you ever feel as if you are falling behind get the help of a credit counselor. These counselors are trained to help people get out of debt so take their advice seriously. Building your credit score is the sure way to make your financial life much easier. Manage your finances properly to ensure that you will be treated fairly by credit card companies and lenders in the future.

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Comments

Robert, 03:07 AM, August 31, 2007
I agree that credit score is a very important thing. I have felt it by my own experience. I have so many opportunities with my excellent credit.

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