How to Understand a Credit Report Score

When you apply for credit or a loan, the first thing the lender looks at is your credit score. Some employers even look at job applicant's credit scores. Having good credit improves your chances of getting a loan and makes you eligible for higher credit limits and lower interest rates. You are entitled to a free credit report once a year from three major credit reporting agencies: Experian (www.experian.com), Transunion (www.transunion.com), and Equifax (www.equifax.com), which will give you your credit score. What does that number on your credit report mean, and what do lenders think when they see it?

Difficulty: Moderately Easy

Instructions

1. Find the FICO number on your credit report. This is a three-digit number between 300 and 850. This number rates your credit risk based on your credit and loan repayment data. Experian calls the FICO number "Experian/Fair Isaac," Transunion calls it "Empirica," and Equifax uses "Beacon."

2. Understand that the FICO number offers a quick summary of your credit. A rating over 680 is considered good by lenders, meaning you shouldn't have a problem getting credit cards or car and home loans. Below 680 is considered "subprime," which means that you'll be able to get credit, but you probably will pay higher interest rates.

3. Improve a credit score under 560. With a credit rating this low, you will not be able to get a loan for a home or car, and you will only be able to get credit cards with a security deposit or high fee. Some companies may not employ you.

4. Pay your bills and make your loan payments on time. An important part of your credit score is your payment history. If you pay all of your bills in full on time every month, and you make your school, home, and car loan payments on time, your credit score will increase.

5. Keep your debt at a minimum to increase your credit rating. If a lender thinks you won't be able to make your payments because you're currently paying off too many high credit card balances, your credit rating will decrease.

6. Consider the length of your credit history, the type of credit you have, and how often you apply for credit. A longer credit history can increase your credit score, as well as having different types of credit (for example school loans, credit cards, and retail credit). Applying for credit often, however, can lower your score.

References

• Anatomy of a Credit Score
• Understanding Your Credit Score

Resources

• Reading a Credit Report
• How to Read Your Credit Report

Who Can Help Sponsored

• How strong is your score?  Did you know checking your own credit won’t affect your score? Click here to see yours in two easy steps from Experian.