There are four predominant scoring models that are used in the financial industry today to determine your creditworthiness – FICO, VantageScore, TransUnion’s True Credit and Experian PLUS.

Each scoring model has differing weights and unique scoring. You’ll find a different score identified by each that is considered to be a good credit score.

A good credit score will set you up for better interest rates for credit, loans and credit cards. The higher your credit score, the lower your interest rates.

Below you’ll find each scoring model broken down by name, scoring range, good credit score and scoring weights where information as available:

* FICO (Fair Isaac Corporation) – 300 to 850.
* Good credit score = 680 and above.
* 35% – timeliness of payments (only includes payments 30+ days past due).
* 30% – balances versus credit limit ($10,000 available credit with $2,000 debt = 20% debt to credit ratio).
* 15% – time-span of credit history.
* 10% – different types of credit reported (mortgage, revolving credit, installment loans).
* 10% – recent applications for credit and amount of credit recently acquired.
* VantageScore (joint venture of TransUnion, Equifax and Experian) – 501 to 990.

Grading System –
A: 901–990
B: 801–900
C: 701–800
D: 601–700
F: 501–600

* Good credit score = C: 701 and above.
* 32% – timeliness of payments.
* 23% – balances versus credit limit.
* 15% – total amount owed.
* 13% – time-span of credit history and different types of credit acquired.
* 10% – recent applications for credit and amount of credit recently obtained.
* 7% –amount of available credit on each of your credit cards or open credit accounts.
* Experian’s PLUS – 330 to 830.
* Good credit score = TBD.

Experian’s PLUS customer support group, Credit Expert, states that you will not know the range of what is considered “good” unless you purchase their product and are provided the actual score – they note that they do not have visibility to it in the call center.

* Inquiries to your credit report.
* Different types of credit reported (mortgage, revolving credit, installment loans).
* Timeliness of payments and how frequently you were late.
* Balances versus credit limit.
* TransUnion’s TrueCredit – 300 to 850.
* Good credit score = 650 and above.
* Length of credit history.
* Balances versus credit limit.
* Good balance between credit card and loan accounts
* Delinquencies, judgments, collection accounts, too many inquiries.

How Do I Improve My Score?

One habit you will want to get into, if you have not already, is to obtain a free copy annually from each of the major credit reporting agencies. Due to the Fair and Accurate Credit Transactions Act (FACTA), you are able to request a free credit report from each major credit reporting agency every twelve months. You might want to get into the habit of requesting one from a different agency every four months. That way you can keep a perpetual watch over your credit reporting.

how to get a better credit score

By monitoring your credit reports, you’ll be able to quickly correct inaccuracies and swiftly address any negative marks that end up on your credit reports. You’ll also know the areas you need to work on to increase your credit score.

There are general rules you can follow to increase your overall credit score. When you begin to reduce the noted accounts, make sure you start with the most recent and work your way backwards. This is very important to note, since older negative reporting does not impact your credit score as significantly as more recent negative reporting.

* Settle or pay off your collection accounts.
* Catch up all past due accounts.
* Settle or pay off your charged off accounts.
* Negotiate a settlement or pay off liens.
* Catch up late payments and keep payments current.
* Keep at least one older credit card account open and active.
* Lower your balance to available credit on your credit cards to a maximum of 50% on each.
* Become an authorized user on credit card accounts.

Here are some specific, fairly quick actions you can initiate that will help you raise your credit score in a relatively short amount of time. Note the following:

* Keep in mind that lenders make their money by charging interest – they want to see that you’ve maintained balances over a period of time and made payments on time.
* Removing negative items will increase your credit score.
* Paying off your accounts every month does not benefit or take away from your credit score – neutral impact to your credit score.
* Debt to credit ratio on your unsecured and revolving accounts is the key to improving or raising your credit score – will improve your credit score faster than paying off debt.
* Want to reduce debt to credit ratio? Get a couple of subprime merchandise cards that report to the major credit bureaus. They are the ones that tout that there is no credit check and that everyone is approved – purchase online or through their catalog. There are jewelry stores, department stores and other retailers who enable you to get approval for their subprime merchandise cards regardless of your credit score. This is the one of the most effective tools you can use to raise your credit score. It increases your credit limit and decreases your debt to credit ratio. Remember, you must obtain cards that report to the major credit agencies.
* You must show a well-rounded credit profile – e.g., mortgage, credit cards, equipment lease and auto loan.

Do you check your credit report for inaccuracies? The government allows U.S. residents to request their credit report yearly. It is essential to check your report for the chance to correct information as well as catch cases of identity theft or fraud.

All three credit reporting bureaus, Equifax, Experian and TransUnion, provide information that you can view online or in print free of charge. Information within a credit report includes secured debt, unsecured debt, your payment history, employment history and homeowner/renter information.

Take the time to verify the information within these free credit reports is correct. Don’t just check one and figure things are fine with all three. Each company reports information differently and may have inaccuracies.

If you wish to see your three-digit credit score, also known as your FICO score, you may be required to pay a fee. Before agreeing to the terms set forth by the three credit bureaus, contact your bank. Some banks and credit unions will retrieve this information for you if you approach them for information on loan products.

Determining a Credit Score

The three major credit-reporting bureaus look at your financial history when tallying your credit or FICO score. The actual breakdown is as follows:

* 35% payment history, both recent and past
* 30% amount of money you owe all creditors
* 15% length you’ve held and successfully paid on your accounts
* 10% number of credit cards/loans you’ve applied for in the past year
* 10% number and type of loans you currently hold and have held in the past

Credit Score Ranges and the Bottom Line

Credit scores range from 300 to 900. The higher your score, the more attractive you are to lenders. In today’s economy, a credit score of 675 to 699 is considered good, but lenders are more likely to approve clients with a score of 700 or higher.

Fannie Mae and Freddie Mac underwrite mortgages for credit scores of 620 or higher. A credit score of 619 or less leads to high-risk mortgages that add on hefty fees and much higher interest rates.

The same is true of car loans, college loans, personal loans and credit cards. Banks want people with positive credit histories. They look for people that pay on time. They want people who pay off loans per the terms of agreement. Financial institutions avoid people who have filed for bankruptcy or have a history of failing to pay on time. With a lower credit score, you end up spending more money.

Look at a current listing of mortgage rates (March 2009):

* 720 to 850 = 4.785%
* 700 to 719 = 4.910%
* 675 to 699 = 5.448%
* 674 to 620 = 6.598%

Using these rates, a $150,000 mortgage costs a borrower with a FICO score of 720 approximately $130,000 in interest over the life of the loan. Someone with a score of 620 pays interest of $190,536. Moreover, the monthly mortgage payment increases from $778 per month for good credit to $946 per month for poor credit. You pay more every month because of the increased interest rate.

If you think your credit score is only used for loans, you’re mistaken. Insurance companies use credit scores to determine rates. These companies feel that credit scores determine high-risk customers and raise rates on homeowner, renter and auto insurance policies.

Employers use credit reports to determine a potential employee’s reliability. Credit scores are used to determine if a phone company, electricity company or satellite/cable television company will require a hefty deposit before granting you an account. Credit scores affect your life in more ways than you would imagine.

Save Thousands by Improving your FICO Score

The most effective way to improve your credit score is to pay on time. A payment that is late by a few days will not show up on your credit report, but anything thirty days or later does count against you. If you miss a payment, get caught up that same month if possible.

Report discrepancies in your credit report as soon as you notice them. Remain proactive about following up with the financial institution. Many put off notifying the credit bureaus about mistakes they’ve made. While you may have corrected an error with your creditor, it may show up on your credit report until you push to have that information corrected.

If you have a lot of credit card debt, pay it off. Start with the card with the lowest balance and make extra payments to decrease the balance owed. Don’t cancel the card, but cut it up and stop using it.

Avoid switching balances from one card to another. Opening new accounts drops your score. Additionally, many people switch a balance without closing an account and then become tempted to use the older card in an emergency. If you receive an offer for a lower interest rate, negotiate that same new rate with your current credit card company. Many will match competitor’s offers to prevent losing you as a customer. If you do decide to switch, cut up the old card and do not touch that account again.

Finally, remember that credit inquiries reduce your score. If you are planning to refinance and purchase a new car, do them at the same time so that your credit report is only accessed one time. Avoid applying for new credit cards shortly before applying for a new loan. These simple steps save you money in the end because of a higher credit score.

Everyone wants to improve his or her credit score. Maintaining good credit is crucial to keeping your finances in order. Many people even think increasing their debt and their credit card limit will improve their score if they eventually pay that debt off. But how true is that strategy?

How your credit card debt affects your score

First, it’s important to understand what effect your credit card debt will have on your score. For starters, no matter what your debt is, you always want to stay at 50% below your limit. Approaching your limit indicates that you are coming dangerously close to maxing out your credit cards. This could negatively affect your score. Secondly, it’s crucial that you not close any account with an outstanding debt. Closing a credit card will not only not get you out of debt, but will also hurt your credit score and prevent you from getting the loans you will need in the future.

For credit card payments, timeliness is everything

One of the most important factors is to make your payments on time. Even the slightest late payment will hurt your credit score and make you pay fees. But the longer you go without paying, the worse things get. Once you are 30 days late, your credit card account gets marked as “delinquent.” Your interest rate will skyrocket, creditors will begin reporting you to credit care bureaus, and your credit score will soon suffer. Ninety days is even worse. The credit score system is scaled by predicting whether you will be 90 days late on payments. If you pass that threshold even once, your score will plummet.

When to increase your credit limit

It may make sense to talk to your credit card company about increasing your credit limit. If you have a history of paying off bills and keeping well below your limit, credit card companies will be more understanding. But creditors will be more skeptical if you’ve already maxed out before making a request. You may experience fees, increased interest, and a lowered credit score if you request a limit increase when it’s too late.

Knowing the facts about payments and scores

How you distribute your credit limit across your cards does not matter. If you make big purchases, you may want to have at least one card with a high limit. But always try to keep your cards below at least 50% of their limit, preferably 25%. While it may seem risky to have larger outstanding debts, over the long term your score will improve more rapidly if you pay those debts off in time. Not paying in full won’t negatively affect your credit, but it will increase the amount of interest you pay. Your interest rate won’t affect your credit score if you pay off debts on time; however, if your credit score goes up, it should lower your interest rates eventually. If you want to increase your credit limit, make sure you do so in the right way. If you do, a higher credit score will be your reward.

Additional Resources:

Visa Customer Service
1-800-847-2911

MasterCard Customer Service
1-800-622-7747

Capital One Customer Service
1-800-955-7070

Discover Customer Service
1-800-347-2683

American Express Customer Service
1-800-668-2639

While it’d be nice to live a “credit-free existence,” it can be difficult to do so in today’s world. Purchasing a house, a car or securing a loan all requires some level of credit.

Your credit score is important when it comes to how much of a downpayment you need to make on a home. It determines how long you wait to gain approval. It determines whether you get the house or another interested buyer gets the house. It determines the interest rate on your loans. It is the gateway to your access to extra capital. It is the barometer of how “creditworthy” (or risky) you are.

Sometimes you can be denied credit or charged an extremely high initial premium when you try to take out a loan. You may be applying for college, taking out a mortgage, getting an auto loan, shopping around for insurance or opening a new credit card. If this happens to you, the Fair Credit Reporting Act states that the lender must specify the specific item(s) on your credit report that resulted in your denial or high premium. Ask questions to find out what you can do to appear more creditworthy. Sometimes it’s as simple as paying down your credit card balances a little further. Other times, it may take a few years for old default accounts to fall off your blemished record.

What Is a Good or Bad Credit Score?

Over two-thirds of Americans don’t even know what a credit score is, says a recent Consumer Federation of America survey. The most commonly used credit score is called FICO and ranges from 300 to 850. Ideally, you will want as high a credit score as possible so lenders look at your portfolio and see that you’re a low risk borrower who is likely to repay your loans. In today’s market, a score of 720 – 850 is considered ideal. As of March 2009, the national average for credit scores is around 693. Once you start dipping below average, you will need additional financial statements, personal references and documentation confirming your job. You may have to wait a little longer to gain loan approval or plead your case a little more adamantly. If you have a score below 500, you should forget about applying for credit at all until you can improve your situation.

Your credit score will fluctuate over time depending on your financial activities and the transfer of information, so it’s important that you check your credit report each year to ensure everything has been recorded accurately. The Fair and Accurate Credit Transactions Act of 2003 entitles consumers to one free credit report a year from each of the three credit bureaus: Equifax, Experian and TransUnion. However, be aware that if you want to see the actual FICO score, you will need to pay an additional $6-$16.

What makes up a credit score?

Credit scores may seem like rocket science at first, but your credit score is essentially based upon five categories: Repayment history/lateness, total debt amount, length of credit history, type of credit – secured (mortgage) or unsecured (credit cards) and frequency of borrowing. Let’s get down to brass tacks.

In the overall breakdown of that credit score number, 35% is based on your payment history. It’s all too easy to say, “Who cares if my payment is a few days or weeks late? They’re still getting their money.” Yet in the world of credit scores, the worst thing you can do is miss a credit card payment, miss paying a utility bill, default on a car loan or skip a mortgage payment. In some cases, a missed payment can drop your score by as much as 100 points and take 24 months to recoup. To ensure this percentage of your score is favorable, you need to bring all your accounts current and make sure that the minimum monthly payment is covered each month at the very least. If you’re disorganized, try to consolidate your payments into one easy monthly payment, set up cell phone reminders or pay automatically through your checking account.

The second biggest factor on your credit score is how much credit you’ve been offered but haven’t taken, which accounts for 30% of your number. By only using 30% or less of your credit limit, you are showing that you can exercise restraint. On your credit card statements, look at your balance and your “total available credit/credit limit.” If your credit limit is $3,000, your balance should be $900 or less. If your credit is $1,000, your balance should be $300 or less. Sometimes people are hurt by closing their credit card accounts because it decreases their total available credit and makes it appear as though they’re using up more credit.

The third biggest factor on your credit score is how long you’ve had credit history, which is 15% of your number. Again, if you close your older credit card accounts, it will appear as though you haven’t had credit for very long. College students often wonder how they can gain access to credit for the first time. There are a number of credit card offers available for responsible students to begin a credit history. Student loans or auto loans with a cosigner are also good ways to get started also.

Another 10% is based on the amount of debt you’ve accumulated over the last year. When someone (other than you) looks at your credit score, this is reported as an “inquiry.” These inquiries are listed on your credit report so you can see who has been looking at your history. Generally these inquiries are made only by prospective employers, creditors, collection agencies and companies you have contacted for quotes. One of the worst things you can do is open up a ton of new credit card accounts in a short period of time. This shows that you’re reaching your spending limit, abusing credit privileges or mismanaging your finances in some way. However, don’t worry about shopping around for auto insurance quotes or anything like that. The credit bureaus can tell the difference between shopping for quotes one week, or opening up six credit cards to pay off other balances in six months’ time.

The final 10% is based on what kind of credit you have. Not all credit is created equally. Experts say there are three types of good debt that will improve a credit score, if approached wisely. One is a fixed-rate mortgage with a 20% down payment, which shows you’re able to manage a big financial commitment. Another is a low-rate school loan, which also shows you can make monthly consecutive payments on time. Putting down 10% or more on a car loan also shows that you are able to save up money. It’s also good to have a mixed portfolio to show you can manage complex agreements, so throwing one or two credit cards into the mix is a good idea.

One last thing to consider is that the most recent activity factors more heavily on your credit score. For example, 40% of a credit score is based on the last year, 30% on the last 13-24 months, 20% on the last 25-36 months and 10% on the last 37-plus months. Another ray of sunlight is that the statute of limitation for most credit report items is 7-10 years from the time your accounts are first recorded, so over time, negative information gets automatically removed.

How Can a Score Be Improved?

If you have a low score, there are many ways to improve it. The first step is to order your annual FREE copy online. Then you can check it over for any inaccuracies. Remember, 1 out of 4 credit reports contain serious errors that cause Americans to pay higher rates, which will end up costing them thousands of dollars in interest rate charges. You can dispute these charges rather simply by writing, phoning or messaging any of the three credit bureaus. Keep in mind that paying your bills on-time is the best thing you can do to improve your credit score, so try to tackle something that may be keeping you from accomplishing this essential goal. Try to cut expenses or bring in more income if that seems to be your problem. Once you’re aware of what comprises your score, you’ll have a better idea of how to transform your credit portfolio into a creditworthy record.

Your credit score is a three-digit number that affects almost every aspect of your life. It is the product of a complex equation that takes into account all of the information contained in your credit history. Different countries have different versions of the credit score. In the US, the most common scoring system is Fair Isaac’s FICO model.

While the FICO formula is secret, what goes into it is not. The most important thing is your payment history. It contributes to approximately 35% of the score. This includes the number of credit accounts you have, any past-due items, bankruptcies, court judgements, lawsuits, etc. If you miss a payment or default on a loan, it will lower your credit score. Making regular monthly payments raises it.

Another 30% of the score reflects the total amount you owe and the proportion of credit lines you use. If all of your credit cards are maxed out, your score will suffer. Ideally, you shouldn’t use more than 35% of your credit limit.

Other factors taken into account include the length of your credit history, the number of recent credit inquires and new accounts, and the types of credit used.

How your credit score affects your life

If you want to take out a loan, the first thing that the bank will do is run a credit check. If you apply for a credit card, the card company does a credit check. If you want to get a new cell phone, the provider will run a credit check. If you’re applying for a job, the employer may – you guessed it – run a credit check.

Lenders use your FICO score in deciding whether or not to lend you the money. They also use the score to determine the interest rate on the loan. People with a low credit score are considered to be high-risk borrowers. Lenders want extra compensation for taking on extra risk.

Beware of companies that claim they can improve your score

There are many companies that promise to dramatically improve your score overnight. Do not believe them. If it sounds too good to be true, it is. The only way to instantaneously improve your score is to remove all of the negative information from your credit report. This just isn’t possible. That information will stay on your report for at least seven years, longer if it’s a bankruptcy. There’s nothing that these companies can do to change that. The best they can do is check the report for errors. You can easily do this yourself.

How to improve your credit score

There are a few simple things you can do to improve your credit score:

> Get copies of all three of your credit reports once a year. Credit bureaus are required to send them to you free of charge.

> Check for errors. It may be something small, like duplicate information, or something big, like identity fraud. The sooner you know, the sooner you can correct the error.

> Always pay your bills on time. Missing even a single payment will hurt your score.

> Do not apply for too many new accounts in a short period of time.

> If you don’t have much of a credit history, apply for a credit card, or even a store card.

> Don’t max out your credit limits.

> Don’t cancel all of your credit cards in one go. If you’ve paid off the balance, put it away and don’t use it.

These are all things you can do on your own, without having to pay someone to do it.

What to do if you find an error on your credit report

If you have an error on your credit report, it can lower your score through no fault of your own. You will need to contact the credit bureau, either by mail or via their website, and file a dispute. Fill in the necessary form and include any proof you have to back up your claim. If you’re not successful, you should contact the creditor directly asking them to remove the erroneous information.

You can get copies of your credit reports by contacting the following agencies:

TransUnion
P.O. Box 390
Springfield, PA 19064-0390
800-916-8800
www.transunion.com

Experian
P.O. Box 2104
Allen, TX 75013-2104
888-397-3742
www.experian.com

Equifax
P.O. Box 105783
Atlanta, GA 30348
800-685-1111
www.equifax.com

Your credit rating is the embodiment of your entire credit history. It encompasses your credit assets, liabilities, and the other incidents in your financial past such as bad debts, unpaid loans, or good standing with creditors. The three major credit report bureaus determine your credit rating, as they are the ones collecting the information from different creditors and lenders.

From all this information, an assessment shall be made on how much money can be extended to you in case you apply for a loan or other forms of credit extensions.

Three credit bureaus

A credit bureau, otherwise known as a credit reporting agency, serves as an assessor of a person’s credit history. In the United States, there are three main nationwide agencies that acquire an individual’s credit rating. The three agencies are Transunion, Equifax, and Experian. These three bureaus differ in such a way that different creditors and lenders submit information to them. From the collected data from lending companies, loan creditors, and other public records comes your credit assessment and credit score.

There is much debate about which agency creates a better and more accurate method of scoring. However, since these agencies represent different lenders, all of the reports churned by their company are vital to the assessment of one’s credit history.

Excellent, good, poor credit rating

To be able to determine if your credit rating is excellent, good, fair, or poor, the agencies use the Fair Isaac Credit Organization (FICO) method. Known as the FICO score, the number ranges from 300 to 900. The higher the number, the better are the chances of the lender to get the loan because they pose a lower risk. The FICO score takes into consideration the credit lines you have, your lines of open credit, if you have a reputation of being a delinquent payer, and the amount of credit you have in the past.

If you post a score from 750 to 850, your credit rating will be marked as excellent and you will be offered the best possible interest rate. A good credit rating ranges from 660 to 749. This means that there is a very good possibility that your financial application will be granted.

Those with fair or poor credit rating will have great difficulty in applying for a credit extension.

Always check the information logged in your credit report. This will guarantee the accuracy of your FICO rating.

Where to find a credit rating?

You can get your credit rating by simply calling, faxing, snail mail or going online to the three major credit bureaus: Transunion, Equifax, and Experian. It is mandated by federal law that you can obtain your credit report or credit rating from these three bureaus for free on an annual basis.

There is also the option of going to other sites on the web that offer the service of getting and monitoring your credit report for you. You may avail of their services, but always make sure that the site is a secure one.

How to improve a credit rating

There are many ways of improving one’s credit. You will not be considered as a bad debtor if you can efficiently manage your debts in a timely manner.

The best but often unheeded advice is to always pay your bills on time. There can be no better way of increasing your FICO rating if many creditors consider you to be a good payer. Late payments can equate to very low scores. Bear in mind that even if you have paid off a loan, such an amount will not be removed from your credit history. So it would be better to plan ahead and manage your finances carefully before obtaining a huge loan. You will never know when you will need a loan extension at a future time.

The number of credit cards also affects your credit rating . It is a really bad idea to circulate your debts by charging off your other debts to credit card companies to your other credit card. This will result in a never ending cycle of debt and it would ruin your chances of getting a good credit rating.

What hurts a credit rating?

The first thing that can really affect your credit rating is an unpaid loan. This means that you are a bad payer and that there is a very good chance of you not paying your application for a credit extension.

Another negative point to consider is a delayed payment for your credit loan. Many people think that after paying something, the delay will no longer be an issue. This could not be further from the truth as negative records stay in your record for several years. This also includes payment of just the minimum of the loan and closing a credit card.

It would be poor management on your part if you spend your time paying for high interest rates, when you could have just managed your payments properly.

The saying goes something like this: It’s not whether you win or lose, but how you play the game. Maybe, but your credit score means a lot. Get failing grades in school and you’ll flunk out. Get too few hits in major-league baseball and you’ll be sent down to a farm team. Get too low a credit score and you’ll have difficulty obtaining loans for such things as a car, a house and a college education.

Thankfully, you can easily find out what your credit score is and make changes to improve it.

The higher, the better

Information collected about you from credit applications and credit reports include:

* Your bill-paying history.
* The number and type of accounts you have.
* The age of your accounts.
* Outstanding debt.
* Collection actions against you.

A formula enables credit bureaus to add or subtract points for each variable. The total number of points, your credit score, tells creditors how big of a risk they would be taking by lending you money. The higher your credit score, the better.

Checking it for free

Federal law gives you the right to obtain your credit report and credit score from each of the three major credit bureaus — Equifax, Experian and TransUnion — once every year, free of charge. You can request your reports from all three at once by starting with the website of the U.S. Federal Trade Commission (FTC). It’s wise to compare reports from all three, because each company’s methodology can be different from the others’ and lead to slightly different scores.

Finding and fixing errors

You may find errors or omissions, which could result in your being denied credit. If so, contact the credit bureau in writing, identifying the problem, stating the facts and requesting that the information be updated. Send your letter by certified mail. The companies are required respond quickly — usually within a month. When a change is made, the company must send you a free copy of your report. If you ask – and you should do so — the company must send the new information to anyone who received your credit report over the past six months. Follow up. Be sure the corrections are passed on to your creditors.

Problems with checking too often

There can be a downside to inquiries. If you make too many, your creditors can start to believe that you’re nervous. Perhaps you’ve taken on excessive credit card debt. Maybe you’ve missed a mortgage payment or are in some other kind of money trouble. Frequent inquiries can lower your credit score. It’s good to review your credit reports from all three credit bureaus annually, and definitely before you apply for a big loan, but not more than that.

Problems with closing accounts

Many financial advisors tell their clients to cut up some credit cards and close unneeded accounts. Generally, that’s smart. However, in some cases, closing an account can lower your credit score. Old cards may represent a long history of prompt bill payment. You can toss cards that you know you’ll never use again to help prevent identity theft, but keep the cards you’ve had for a long time and show that you’re a reliable borrower.

Adding new information

Be sure to convey any changes in your location or marital status. If you’ve moved or changed names, write to your creditors and tell them. If your monthly statement doesn’t reach you at your new address, you could miss a payment, and inadvertent lapse will no doubt find its way to your credit report. If you change names and forget to tell your creditors, all your hard work in maintaining a good credit history could go down the drain. It could even be seen as attempted fraud.

Before you start worrying about what number defines your credit report, your FICO score, find our where you stand compared to your peers. Check average credit scores to compare your credit score with others in your state. Once you know what level you are, you can start evaluating the reasons you find yourself where you are. Hopefully by learning the real data that determines your credit score, you will follow the path up to higher scores.

FICO What?

Your personal credit score is a number lenders use to rate your credit worthiness. There are two main scores in use today – FICO and Beacon scores. FICO is much more common than Beacon which is used solely at present by Experian. FICO is simply an acronym for the Fair Isaac Corporation, the company who helped develop the mathematical formula for calculating credit risks.

A Practical System to Negate Losses

A credit score can cause a lot of headache to the consumer. The truth though, is that credit scores actually help the economic system as a whole by keeping losses down for lenders across the board. Credit scores are used to predict how likely an individual is to repay a new loan based on experience with millions of consumers. More often than not, these numbers are excellent predictors of consumer behavior in handling debts.

Calculating the Score

There are many different computer models that can calculate a credit score. In general, however, the computer model assigns points to information in a credit report. For example, making payments on time every month is positive for the score. Charging the maximum amount available on a credit card is negative. The computer adds the positive and negative points, and the resulting number is a credit score. Credit scores have proven over time to be a reliable indicator of whether or not a consumer would repay a loan, and are not going away anytime soon.

Typical variables that are considered in your score are:

1) Current balances on accounts in good standing: Accounts showing all payments were on time are positive.

2) Length of time accounts established: Long-established accounts are positive

3) Bank revolving accounts: Lack of accounts, or too many can be negative.

4) Reported delinquencies: Negative, especially if severe and recent. These can be unpaid accounts, missed or late payments, and charge-offs.

5) Number of accounts with balances: Too many credit card accounts may have a negative effect on your score.

6) Number of finance company accounts: Loans from finance companies may negatively affect your credit score

7) Recent payment history: An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.

Proportion of balance to your credit limit: If the amount you owe is close to your credit limit, it is likely to have a negative effect on your score

9) Number of recent inquiries: Not all inquiries are counted. Inquiries by you or creditors who are monitoring your account or looking at credit reports to make “pre-screened” credit offers are not counted.

10) No recent (non-mortgage) account balance information: Can be negative when seeking mortgage loans

11) Legal item filed or collection item reported: Negative, effect decreases with time. Accounts not paid as agreed and/or legal item filed. Your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy

12) Employment and residency: Longer time in your job and at your residence can help your score.

How much weight each of these factors has on your score is not disclosed to consumers because it causes more confusion than insight into the credit scoring process. Everything in credit scoring is relative – one negative item can have a small or large impact on your score depending on your credit history. If you have a long and seasoned history of credit and many established accounts, one late payment would have a small impact on your score. However, if you have a short credit history, one late payment would impact your credit history much more. If you have no established credit, you will have no score. Credit scoring requires that you have at least one account that is older than six months and have at least one account that has been reported to the credit bureau in the last six months.

There are three major credit reporting agencies. They are in the business of collecting and distributing credit histories on all Americans. If you’re an average American, it is very likely that these three credit reporting agencies keep your credit history. They are competitors, which means that each company has a different version of your information. This means that it is necessary to obtain reports from all three companies, and this way, you can be sure that none of them has erroneous information in their files.

A credit reporting agency will supply the on-line credit report with your credit history and personal information. Credit reporting agencies operate on a profit basis and charge a fee whenever your credit information is sent out. This occurs whenever you complete a credit application for a loan, mortgage or major purchase.

The largest of the credit reporting agencies or credit bureaus are: Equifax, TransUnion and Experian. There are many other credit reporting agencies, such as: check acceptance and verification credit bureaus like Chexsystems, Certegy and Tele-track. Some others include tenant screening agencies and the MIB. All must comply with the law. When they don’t, a consumer can enforce their rights.

One of the most important laws protecting your identity and credit information is the Fair Credit Reporting Act. Its purpose is to promote the accuracy, fairness, and privacy of the information collected and maintained by credit reporting agencies, the FCRA gives you specific rights:

You must be told if your information is used against you. If you are denied credit, employment, or insurance because of information in your report, the denying party must alert you and provide you with the name, address, and phone number of the credit reporting agency used to support the denial.

> Upon requesting a credit report, a credit reporting agency must give you the information in your file and a list of everyone who has requested it within a certain time period. There is no charge if you have been denied credit, employment, or insurance because of items in your file (if you make a request within 60 days).

> A credit reporting agency must investigate items that you report as inaccurate. You will receive a full copy of the investigation report. If the dispute is not settled to your satisfaction, you may add a statement to your report.

> Inaccurate information must be corrected or deleted. Credit reporting agencies are required to remove or correct inaccurate or unverified information. They are not required to remove accurate data unless it is outdated.

> Whenever you apply for a loan, a mortgage or a major purchase this information is submitted to the reporting agencies. If you used a different address then the reporting agencies would record that as if you have moved. Any inaccurate or misinformation must be reported to the credit reporting agencies so that your credit report can then be adjusted to reflect these changes.

Equifax, Experian and Trans Union are established in Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington, West Virginia, Wisconsin and Wyoming. Beyond having on-line access you can also visit your local office.

Credit reporting agencies provide an important service. They are required to maintain a standard that is very high and this can be a source of assurance for the consumer. The consumer can rely, with confidence, on the efficient way that their credit records are being dealt with by the credit reporting agencies.

Have you ever applied for a loan and been accepted or went on a job interview and been denied because of a poor credit score? Have you then wondered who determines what your credit report says and how high or low your credit score is? The truth is that there are three credit bureaus in America that all work to calculate your credit score and keep up with how good or bad you are with managing debt.

Credit bureaus are in place to collect information on your ability to repay debt and dispense it to potential creditors, like credit card companies, and even future employers. They all work to keep track of your bill-paying tendencies and stay in business by properly predicting how you will act in the future when it comes to managing your money.

The three major credit bureaus

In America, there are currently three credit bureaus. They are Equifax, Experian and TransUnion. Each of them has been in business for many years and while some others have tried to enter the marketplace, these three are the most trusted and, therefore, are used most often by creditors. But there is also an advantage to have three credit bureaus. Rather than trust just one to reliably deliver your credit score, having three means that there is a system of checks and balances in place that allows consumers to get the truest possible score for themselves. It’s one reason most people check with all three major credit bureaus when they check their credit scores every year.

Why you need to contact the credit bureaus

In today’s economy, it’s important to keep an eye on your credit score at all times. As this video explains, credit card companies are changing the ways they handle some consumers and affecting credit scores across the board.

Regulating the credit bureaus

Of course, the next obvious question when it comes to credit bureaus is: Who is regulating the credit bureaus and making sure they do their job properly? The three bureaus also have a lot of personal information, which is given to them without the permission of individual consumers. Because of this, the Federal Trade Commission, the government agency in charge of protecting consumers and watching over the economy, safeguards Americans by watching over the credit bureaus. They make sure the bureaus are doing their job and accurately dealing with the credit reports of individual consumers. They also make sure the information dispensed to credit bureaus and from credit bureaus is done safely.

Companies that report to the credit bureaus

There are many different companies that reach out to the credit bureaus to share information about you. Here are just a few of them:

Creditors and lenders: Credit card companies, banks and anyone who has ever given you a loan will keep in touch with the credit bureaus about how you’ve gone about paying back debt.

Utility companies: Think that paying your electric bill late doesn’t matter? It also gets tracked on a credit report.

Debt collection agencies: If you’ve been delinquent on a payment and refused to make it, it will be reported to the bureaus.

Public courts: Any ruling that comes out of court, such as filing for bankruptcy or missing child support payments, is displayed on your credit report after being reported to the credit bureaus.

Achieving a great credit score

The credit bureaus are in charge of keeping track of your credit score. But you are ultimately in charge of keeping your score high. Wondering how to do that? Watch this video to learn some tips about maximizing the credit score the bureaus keep on file for you.

Why you should contact a credit bureau soon

While credit bureaus may seem intimidating, the truth is that they are there to help you better understand how your financial situation affects your life. By law, Americans are entitled to one free credit report every year and consumers need to be able to contact credit bureaus to get these reports. Take advantage of the law and seize control of your finances again by reaching out to one of the three credit bureaus and seeing where you stand today.