Fix My Credit | Your Credit Score: What Is It And Why Is It Important?

Anyone who has tried to get a loan in the last fifteen years or even anyone who has tuned into basic cable in the last year and a half is at least familiar with the basic idea of a credit score: it’s a number that lenders use to determine what interest rate to give you on your loans. But how does it really work?

So, what is a credit score? A credit score is a single number that represents how trustworthy you are from the perspective of someone who would lend you money. If you haven’t proven yourself trustworthy, your credit score is low; on the other hand, if you repeatedly show yourself trustworthy (by paying bills on time and such), your credit score will be high.

Who determines a credit score? In the United States, a small number of companies, called “credit reporting agencies,” are in the business of collecting information about you. They do this by exchanging information with companies that offer financial items, such as loans, credit cards, and so forth. The agencies generally care about three things: the money you’ve borrowed, the amount you owe, and whether you’ve been making your payments. They collect this information from everyone you are indebted to and create a picture of how trustworthy you are in terms of credit. In the United States, the three main companies engaged in this business are Experian, Equifax, and TransUnion.

What makes up a credit score? There are five main elements to the credit score:

1. Your Payment History (35% of your score)
2. The Amount of Credit You are Currently Using (30% of your score)
3. Your Credit History, or Length of Credit (15% of your score)
4. How Regularly Your Credit is Checked by Lenders (10% of your score)
5. The Different Types of Credit You Have (10% of your score)

What can I do to fix my credit and make my credit score better?  The biggest thing you can do is pay down your debts, not open up new credit cards and such, and pay everything on time.  But to know exactly how to make your score better NOW just follow the step-by-step instructions in the #1 recommended FICO® Formula eBook.  To Your Success!