How to Read Credit Report Scores

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Having a positive credit score is important to securing financing for purchases like a home or car. There are three credit bureaus that report credit scores in the United States: TransUnion, Experian and Equifax. They use a scoring model that ranges from 500 to 850 points, with 850 as the best possible score an individual can get. When reading your credit score for the first time, it can be a little confusing. Here’s a guide to reading your credit report score.

Understand the credit scoring model. The highest credit scores range from 720 to 850, which means you have excellent credit. A score of 700 to 719 is also good, but earning a higher score may qualify you for the lowest rates. Scores between 620 and 699 are average, which means you will be offered average interest rates, but should not have an issue obtaining credit. A score of 560 to 619 is the lowest credit score bracket, which means you may have a difficult time securing credit and typically will be charged the highest interest rates.

Understand factors that negatively affect your credit score. Your history of making timely payments accounts for 35 percent of your score. Thirty percent is based on the amount of debt you owe. Fifteen percent is affected by how long you’ve had credit. Ten percent is based on whether you have acquired large amounts of credit in a short period of time, and 10 percent is affected by the types of loans you have, keeping in mind that credit bureaus like to see a mix of revolving credit (credit cards) and fixed loans such as mortgages.

Improve your credit score. Unless you have a perfect score, there are always steps you can take to give your credit score a boost. For example, keep your credit card balances to 30 percent or less of the total available credit. Also, minimize your late payments by setting up automatic payments through your online banking account. And although it’s counter-intuitive, don’t close old credit card accounts - keeping them open can boost your credit score. It shows that you have credit available, but have the self control not to use it.

Resolve any discrepancies on your credit report. If companies are inaccurately reporting late payments or high balances, this could lower your credit score. To correct these issues, contact the credit bureau that is reporting the inaccurate information and request a corrections form.

Protect yourself from unauthorized use of your credit cards. When reviewing your credit report, look for accounts that don’t belong to you. If you spot unauthorized activity, request that a fraud alert be placed on your account. The can be accomplished by contacting the Nationwide Consumer Credit Reporting Agency and making a request that your Social Security number be flagged.

Tips & Warnings

  • Get a credit report each year from Annual Credit Report. You can request a free report every 12 months, providing an opportunity to review your credit score and spot any issues on your credit.
  • Minimize the frequency of credit checks. If your credit report is run too frequently, it appears that you are trying to secure a lot of credit.

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