If you don't understand what a credit score is you are not alone. Almost 80% of the people do not understand that credit scores measures credit risk.

    Credit Scores: Most Lenders use FICO (Fair Isaac Corporation) credit risk scores to get a quick and objective measure of your credit risk.

    FICO score- A numeric representation of your financial responsibility based on your credit history, which is based on your credit report. If you understand the factors that can increase or decrease your score, you can gain a better understanding of how lenders see you and how you can improve your credit rating. The five factors that create your FICO score are:

    1. Payment History (about 35% of your score)
      This factor has the biggest impact on your credit score, however an overall good
      credit standing can outweigh a few late payments.
    2. Amounts Owed (about 30%)
      Owing money on credit accounts doesn't mean that you are a high-risk borrower,
      but owing a lot of money on many different accounts may suggest that your are
      overextended and more likely to make late payments, not pay at all or default on your obligations in the near future.
    3. Length of Credit History (about 15%)
      Lenders want to see that you can responsibly manage your available credit over
      time, however people not having credit for a very long time may get higher scores
      depending on how the rest of their report looks.
    4. New Credit (about 10%)
      While FICO scores generally don't associate shopping for the best rate on a loan
      with higher risk, opening several credit accounts in a short period of time can
      represent greater risk, especially for people with short credit histories.
    5. Types of Credit in Use (about 10%)
      A healthy mix of types of credit can improve your score, but since credit mix is
      usually not a key factor in determining your score you should not open credit
      accounts that you do not intend to use.

You should check your credit report and scores periodically to correct any mistakes and so that you can take steps to improve your rating over time. The real secret to improving your standing is: Pay your bills on time and keep your balances low!

Credit Reports: These are actual reports put out by the top three credit bureaus--Equifax, Trans Union, and Experian. The reports basically state what the particular creditors subscribing to each bureau say about you. These reports are not free and must be requested by the consumer.

Each bureau has a slightly different report depending on which bureau each of your creditors subscribes to. To request a report you may write to the bureaus or call their toll free numbers to find out more information

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
(800) 685-1111

Experian
P.O. Box 2104
Allen, TX 75013-0949
(888) 397-3742

Trans Union Corp.
760 W. Sproul Rd.
Springfield, PA 19064
(800) 888-4213

You should request your credit report about 3 times a year. Nearly every consumer has at least one error on at least one credit report from one of the major credit bureaus. The credit bureaus just generate your report from the information they receive from your creditors. They do not verify information unless you specifically request them to verify certain entries on your report.

Generally, accurate information cannot be removed from your credit report file. If there is information in your report that is legitimately incorrect, you should dispute it. Credit agencies must investigate inaccuracies within 30 days or remove the disputed information.

In fact, checking out your credit report may be one of your best defenses against identity theft. Even though you will not be liable for the charges made during the theft, you are burdened with having to clear your name. Make sure to alert all 3 credit bureaus and ask that a fraud alert be placed on your files.

Lastly, remember that if you are denied credit you should always ask why! If you have been denied credit you are entitled to a free copy of your report from the reporting agency. You have 60 days after receiving the denial notice to request a copy.

TIPS TO IMPROVE YOUR FICO SCORE

Payment History Tips:

  • Pay your bills on time: Late payments and collections can have a major negative impact on your score.
  • If you've missed payments, get current and stay current: The longer you pay your bills on time, the better your score.
  • Be aware that paying off a collection account will not remove it from your credit report: It will still stay on your report for 7 years.

New Credit Tips:

  • Do your rate shopping for a given loan within a focused period of time: FICO scores distinguish between a search for a single loan and a search for many new credit lines in part by the length in which inquiries occur.
  • Re-establish your credit history if you have had problems in the past: Opening new accounts responsibly and paying them off on time will raise your score in the long term.
  • Note that it is ok to request and check your own credit report: This will not affect your score, as long as you order your credit report directly for the credit reporting agency or through people authorized to provide credit reports to consumers.

For additional tips visit www.myfico.com

All this information is available on the Internet.