Understanding my credit score

Your credit, or FICO score, is comprised of all the credit that has been extended to you in relation your ability to pay on time.  The score range could be 0 (if someone has no credit), 300 if someone has absolutely terrible credit or as high as 850, which is a perfect score.  You do not need perfect credit and usually any thing above the low 600s can help you obtain financing, although it would be at a higher interest rate.  To be able to obtain the best type of financing available usually a score in the 700s is needed.  Most borrowers with issues will be in the 500-600s. There are also three credit bureaus that maintain your score, this is Experian, Equifax and Trans Union.  The bureaus will have different credit scores on you mainly because they calculate the items that report differently and only certain companies report to certain bureaus.  A derogatory item may appear on one report and dramatically lowering you over 100 points while the other two bureaus have no record of it and thus reflect a higher score.  The lenders will either rely on one report if you are applying for something smaller like a credit card or if you are applying for a mortgage the lender will use all three reports and average out your score.  The score determines what your interest rate will be and how much credit they lender will extend to you. Important things to do to maintain a high score are to always pay your bills on time.  If you do not the lenders will report late payments and these can slowly start to drag down your score.  Make sure to maintain proper debt to income ratios as well.  If you have only one credit card with a balance of $500 and spend $500 every month then it looks like you are maxing out your credit line every month, even if you pay it on time.  Under the same scenario if you have multiple credit cards that have $5,000 credit limits and you only spend $500 a month the score is calculated higher because you have more available credit then you are spending.  Account history also plays a role in your score, so if you just applied for a credit card it may take a while for it to show the full maximum benefits.  Additionally, having more positive items report makes for a stronger credit score. You also need to do your best to avoid any negative reporting.  These include public records like a bankruptcy, collection agencies from utility companies or medical debt, late payments for a credit card and if an account goes seriously delinquent then it will report as a charge-off.  As always, review your credit report to make sure everything is reporting as accurate and if not you can dispute it.  If the items are accurate and your score is low work on raising your score either through paying off debt, raising your credit line amounts or by applying for a secured credit card if your score is very low.