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Understanding the Impact of Your Credit Score
Few people understand the impact a credit score can have on an individual’s life. A high score means a lower rate for a loan. A low credit score results in more expensive insurance premiums. It’s important to understand your credit score and how to improve it to reap the advantages of good credit.
Creditors have used credit scoring systems to determine if people are a good credit risk for some time. Today, many businesses, including insurance companies, phone companies, and employers, use a person’s credit score to decide if they should offer a product, service, or employment.
How Credit Scores Are Calculated and What They Mean
Credit scoring systems are complex and vary among creditors and businesses. Essentially, information from an individual’s credit report goes through a statistical program. This program compares that information against consumers with similar profiles. It identifies characteristics related to risk and generates a number representing a credit score.
The higher your credit score, the less of a risk you are considered to be. So, the higher the score, the better. Scores generally range from 300 to 850. A score of 620 or higher should mean you are eligible for very good rates.
Obtaining Your Credit Report and Tips to Improve Your Score
You can obtain your credit score from any of the three national consumer reporting companies. They charge a reasonable fee, typically around $8, for the score. Since your score is comprised of information from your credit report, ensure your credit report is accurate.
If your credit score is low, or you want to make sure it stays high, follow these steps to improve or maintain your score:
- Pay your bills on time.
- Don’t max out your credit limits.
- Try not to apply for too many new credit accounts in a short period.
- Do not have too many credit card accounts.
- Develop a credit history early to show a long record of responsibility.
If you find inaccuracies on your credit report:
- Dispute the inaccurate information directly with the consumer reporting agency and the provider of the information.
- Write to them about what you believe is inaccurate and provide proof, including copies of documents, to support your position.
The agency generally has 30 days to investigate your dispute. For more information about your credit score and credit report:
