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Few people understand the impact a credit score can have in an individual’s life. A high score can mean a lower rate for a bank loan while a low credit score can result in more expensive insurance premiums or interest rate on your loans and credit cards. Not only is it important to understand your credit score, but it is also important to understand how to improve your credit score and reap the advantages of good credit.
How does your credit score affect you? First, the basics. Creditors have been using 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 determine if a product, service or employment offer should be provided.
Credit scoring systems are complex and vary among creditors and businesses. Essentially, information collected from an individual’s credit report is put through a statistical program that utilizes many factors. The program identifies all characteristics that relate to risk and generates a number which represents 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. The scores generally range from 300 to 850.
You can obtain your credit score from any one of the three national consumer reporting companies. They are allowed to charge a reasonable fee, typically around $12, for the score. Since your score is comprised of information from your credit report, you need to ensure that your credit report is accurate. To get your free annual credit report, visit www.annualcreditreport.com, or call toll-free 1-877-322-8228. You should consider staggering the request for your free report from each of the three agencies over a 12 month period. The free credit report will simply show your current credit status, but will not include the actual credit score.
If your credit score is low, or you just want to make sure it stays high, follow these steps to improve or maintain your score:
• Pay your bills on time.
• Do not have a balance greater than 50% of your credit limits on credit cards.
• Do not apply for too many new credit accounts in a short period of time.
• Try to have no more than 3-4 credit cards.
• Develop a credit history as early as possible to demonstrate a long record of responsibility.
If you find inaccuracies on your credit report you should:
• Dispute the inaccurate information directly with the consumer reporting agency and maybe even with the vendor.
• Tell them in writing what you believe is inaccurate and provide as much proof, including copies of documents, as you can to support your position.
The agency generally has 30 days to investigate your complaint.
Suggested Web links for more information about your credit score: