How to Improve Your Credit Score

One of your most important assets is something you may not even think about much - your credit score. Your credit score affects your ability to purchase a home or refinance. But even if you don't plan to purchase or refinance in the near future, you should still consider the importance of your credit score and keeping it in good shape.

Your credit is used to determine what types of loans or credit can be extended to you, whether you will receive approval for a loan, and what interest rate will be extended to you. The better your score, the more appealing the mortgage type and the interest rate.

Understanding Your Credit

Three privately held national companies collect information about your credit - Equifax, Experian and Trans Union. Credit scores are based on a scoring system called the FICO model, which ranks credit on a scale of 300 (lowest score) to 950 (highest score). The higher the credit score, the less probability of an individual defaulting on a loan. So, lending organizations prefer borrowers that have higher credit scores.

Credit bureaus collect information, beginning with identifying characteristics, such as name, address, social security number, your employer, etc. They also collect information on debt and payment history on a variety of loans - credit cards, student loans, car loans, and consumer loans. In fact, most companies or businesses that extend loans supply the credit agencies with payment information.

This information is compiled along with any previous history of collections, information about tax liens, judgments and bankruptcies. Another important piece of information that is gathered is any inquiries for new credit - any applications for credit cards or new loans.

Consumers and their credit information is protected under federal laws. As an example, your credit score can not by affected by such factors as race, religion, gender, marital status, age, nationality, or whether you receive forms of public assistance.

Building Up Your Credit Score

A healthy credit score can speed up the mortgage process, while an unhealthy (lower) credit score can indicate a pattern of risky behavior that could result in a collection or possible bankruptcy. Fortunately, your credit score changes over time; if you have poor credit, you can work on your credit habits to improve your overall score. Click here for more information on how you can improve your credit score.

You should check your credit score periodically to make sure that the information gathered is accurate. In fact, the Fair Credit Reporting Act requires that the three major credit bureaus provide a yearly credit report on request. You can order your credit reports online by visiting http://johnparker.cmail1.com/l/266191/l//www.archive-post.com/JPark/Ezines/Borrower/John%20Oct_07%20brwr.html/www.annualcreditreport.com or by calling 877-322-8228.

If you search online, you'll find a number of credit report offers - most of them claiming "free credit reports", "free credit scores" or "free credit monitoring". These services are not part of the legally mandated free annual reporting program. Almost all of these services actually have some kind of product or service they sell at a fee. Consumers should not have to pay for services that are freely offered.

Your credit score is a vital part of your financial portfolio. If you are looking for ways to improve your credit and would like some advice call me.