A Credit Score Lesson Your credit score is an integral part of every major financial decision you make.  Credit scores are used in obtaining mortgages, car loans, credit cards, insurance premiums, etc.  Credit scores can be used by landlords to determine a prospective tenant’s eligibility.  Even employers use information from credit reports; however they must have permission in order to do so.  This three-digit number can be the difference between being approved for a high interest rate or low interest rate and how much a lender will loan.  The equation is simple: the higher your credit score, the lower your interest rate.  The three major credit bureaus are Equifax, Experian, and TransUnion.  Each of the three companies provide a basic report that includes your personal information, the credit lines you have open, your payment history, and your credit score.   You’re legally entitled to a free credit report every year from each of the three companies.  You can also get your credit score from most lenders at the time of the loan application at no additional cost; however most lenders use a different credit score configuration which produces slightly different results than those provided by the major credit bureaus.  Also, if you’re denied credit, insurance, employment or your credit rate increases, you are entitled to a detailed explanation and copy of your credit report.  How is your score determined? – 35% of your score is attributable to paying your bills on time.  Timely payments = a higher score. – 30% of your score is based on your credit utilization.  To drive up your score, you must pay down your debt.  The highest scores tend to be for people that are only using 20% to 25% of their available credit. – 15% of your score is based on the length of your credit history.  Longer credit histories create higher scores.  If there’s no annual fee, consider keeping an older credit card, even if you don’t use it often.  This will extend the length of your credit history and increase your score.  A credit history of at least six months is necessary for a credit score to be produced.   – 10% of your score is based on having various types of credit.  A combination of loans, such as a car loan, student loans and credit cards is better than just credit cards alone.  – The last 10% of your score is based on the frequency of applying for new credit.  Applying for a lot of new credit in a short amount of time lowers your score. Helping your score: In preparation for a major purchase, you should allow at least six months before the purchase to clean up your report and bump up that score.  Working with credit counseling services won’t negatively affect your score and does not appear on your report; however the Federal Trade Commission warns consumers to be wary of free credit repair services since there’s nothing a service can do that you can’t do yourself.  If there’s negative information on your report, a repair service cannot remove it and neither can you.  You can only try and raise your score in the other areas mentioned above.  For more information on getting a credit report visit AnnualCreditReport.com.