Why Do I Need to Understand My Credit Report Score?

We often hear credit counselors emphasize the importance of free credit repair and credit counseling sessions to maintain excellent credit scores. They even provide practical ways on how consumers can work on having almost perfect credit scores.

However, a lot of people still find it hard to understand how a three digit score can be linked to credit risks, much more to our financial prospects. So to help all us fully grasp what our credit scores really mean, let us discuss some basic information regarding our credit ratings and how they influence our lives as consumers.

Credit Rating Defined

A credit rating is a mathematically computed value that reflects the risk involved in allowing a consumer assume credit. This value is computed using a credit scoring system such as the one developed by the Fair Isaac Corporation. The credit score calculated using the by the Fair Isaac Corporation is also called FICO credit score, and this is one of the popular reports sold by the three credit reporting agencies.

The FICO scoring system features numerical values that range from 300 to 850. A consumer, whose score is near 850, is often considered a credible borrower. On the other hand, an individual with a credit score near the bottom of the FICO scoring system is often viewed as a risky borrower.

Still, a consumer cannot instantly have a credit score. There is an important requirement before the three credit reporting agencies can compute an individual’s FICO score. What is this? Well, a consumer must have at least one credit account that has been open for more or less six months. This will serve as the sole basis in computing the credit rating of the individual.

What things influence a credit score? There are three main factors that have great impact on a FICO rating. These are: payment history, amount of credit, and the age and type of credit accounts. The payment history reflects how a responsible consumer manages his credit accounts. This factor considers on-time, late or skipped payments that an individual incurred in relation to his existing credit accounts.

On the other hand, the amount of credit takes into consideration the level of a person’s debt. This factor looks into the number of open credit lines that a consumer possesses. Meanwhile, the length of credit history determines the average age of a debtor’s credit accounts, as well as the types of credit lines that he has taken.

Ways to Improve Credit Scores

Now let us identify some steps that you can employ to improve your credit report score.

–          Use a credit card lightly. Never max out your credit card as this will pull your credit score down.

–          Pay your monthly charges in full and on time each month.

–          Take advantage of free credit repair services. This is because through free credit repair sessions, you will be given proper guidance on managing your finances, as well as possible ways on how you can improve or maintain excellent credit ratings.

 

About the Author:

Suzy Vanstrusen is a credit analyst and a writer on the website EZCreditRepairSolutions.com. She has been providing consumers with tips and wise information about credit repair as well as helping you out more with your bad credit loans.  Copyright © 2010
 

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