Understanding Your Credit Report

Before deciding on what terms they will offer you a loan, lenders want to know two things about you:  your ability and your willingness to pay back the loan.  For the first, they look at your income to debt obligation ratio.  For the second, they consult your credit score.

The most widely used credit scores are FICO scores, developed by the Fair Issac & Company, Inc.  Your credit score is a calculated number based on your credit history.  Credit scoring uses both the positive and the negative aspects of your financial status for establishing your score.  This system was created to only consider what was relevant to a borrowers willingness to repay a loan.  Your credit score helps lenders determine the amount of risk they may be taking by doing business with you.

Length of credit history, types of credit, current debt level, past delinquencies, and derogatory payments are all evaluated during the scoring process.  You can use the following strategies to make sure your score is as high as possible:

Order a FREE copy of your report every year at http://www.annualcreditreport.com/.

Make sure your credit report information is current and correct.

  1. Dispute any inaccuracies.
  2. Pay your bills in a timely manner.
  3. Reduce your credit card balances to 50% or less of your available credit.