Understanding Your Credit Score

Understanding your credit score means avoiding any mistakes that can hurt credit scores

For better understanding your credit score it's important to know, if you are in debt and concerned about repayments, you are probably aware that too much debt, late payments, or worse, lacked payments, can have negative effect to your credit score. And having a bad credit score can hurt you in every part of your life - not only in the ability to get out loans.

In many circumstances employers can run credit checks, and having a bad credit score might be the crucial factor in getting the job you applied for, to an equally well-qualified candidate having a better credit score. If you want to rent a car, or a home, or even purchase a new mobile phone - you guessed it - a bad credit score can hurt you.

The first credit scoring system was built in 1956 by the Fair Isaac Corporation. It is better known as Fico score. There are several factors you should know about understanding your credit score that have an effect on Fico scores:

• Amount Owed: Avoid to take up too much in proportion to your credit history. Avoid maxing out your credit cards. Try very, very hard not to borrow or charge more than fifty percent of the sum of money that the credit card company allow you to borrow. If you go higher up, it will damage your credit score. Avoid to charge your cards to the limit.
• Payment History: Avoid to pay late. Late payments are destructive to your credit. To make sure that you do not skip a payment, go on autopilot. Set up all of your payments to withdrawn automatically from your bank account. That way you will never have to worry that the check is in the mail.
• New Credit: That means the number of recent accounts opened, and number of recent credit inquiries. Applying for any loans or a bunch of credit cards the same time hurts your credit
• Length of Credit History: Older credit cards with regular on-time payments help build good credit. Avoid to close down old credit card accounts. That's a big mistake. Lenders prefer to see a long payment history. The longer your credit card account exists and you have made on-time payments, the more this improves your credit score.
• Types of Credit Used: Credit cards, mortgage loan, installment loans, retail store accounts, etc.
• Having a tax lien placed against you will hurt your credit rating
• How to Ruin Your Credit Score: Declaring Bankruptcy is absolutely the worst case.

Understanding your credit score also means to know what is considered a good credit score

• Anything above 700 is considered an excellent credit rating.
• 600 to 690 - that's okay, but not ideal. These days, with tightening credit standards, a score like this may not be enough to get you approved for a house, and for sure not for the best interest rates.
• Below 600 - that means you're considered a high credit risk.
• Below 550 - it's a really, really bad credit rating.

How you can find out what is your credit score?

You can get free credit reports by going to annualcreditreport.com and requesting it. They are obligated to supply any consumer with one free copy of your credit report every 12 months. It's the only place authorized by the Federal Government to provide this service. The Federal Trade Commission recommends that you link to them directly from their site www.ftc.gov/freereports to make sure that you are visiting the official site.

You should know that your annual credit report is totally free. But if you want a to see your credit score you have to pay for it. You can get a copy to understanding your credit score from one of the three credit reporting agencies, Transunion, Experian, or Equifax.