Improve Credit Score
Posted on September 20, 2008
Filed Under Free Financial Course |
In the previous lesson you learned how to budget and how to calculate your personal net worth. In this lesson, we will discuss how to improve your credit score.
In this lesson, we will cover what your credit score is, how to get your credit score (for free), and we will briefly discuss how you can improve your credit score. How to improve your credit score will be covered in much more detail in lessons 4 and 5.
The assignment for this lesson is to obtain and review your credit report to understand where you are right now. In six months, after you have implemented the steps outlined in the course, we encourage you to look at your credit report again, to see the positive changes!
What is a Credit Score?
Your credit score is an important factor in determining the interest rate you will pay when borrowing money to purchase a home, car, or any other item. In general, the higher your credit score, the lower will be your interest rate. Therefore, having a higher credit score will actually help improve your net worth.
Your credit score is calculated using a statistical model and reported on a FICO (Fair and Isaac Corporation) scale. The credit agencies use your “FICO score” to predict the likelihood that you will repay your debts. Your FICO score is given on a credit report that banks, credit card companies, insurance companies, and many other agencies use to help them decide whether they will lend money to you or offer you their services. Some of the factors used to determine your credit (FICO) score are:
- Payment History
- Length of Credit History
- Amount of outstanding debt
- Recent inquiries on your credit report
- Types of credit in use
Some of the factors that are NOT taken into consideration are:
- Age
- Race or ethnicity
- Income
- Job
- Marital status
- Education
The three credit reporting agencies in the US are Experian, Equifax, and TransUnion. They each use their own formula to calculate your credit score; so each agency will give you slightly different scores.
Your personal credit report not only contains your credit score, but it also contains all of your current outstanding debt. It will list if you have had any late payments, what the balance is, and much more. Its important for you to know what’s on your credit report.
In fact, it is VERY possible that there are errors on your credit report. These errors require your immediate attention. Fixing these errors can often be very simple and could very well improve your credit score. In addition, there may be old credit cards that you had forgotten about, that you may want to have closed. Reducing the amount of debt you have “available” could also increase your credit score.
So, by simply reviewing your own credit report, fixing errors, and cleaning up old debts, you may be able to improve your credit score immediately! Even a small increase in your credit score could translate into significant savings for you next time you get a loan or credit card because your interest rate will be lower!
That’s why pulling your own free credit report is encouraged.
Now it’s time to see your personal credit report. If you go to Annual Credit Report, you can receive a copy of your credit report. This is a government program that allows all citizens to receive a free copy of their credit report once per year. However, this report will NOT include your credit score.
If you would like to receive both your report AND score go to Privacy Matters 1-2-3. This service will allow you to get a free complete copy of your credit report AND score from all three agencies. This service is 100% free, safe, and legitimate. Most free services usually only provide your score or your report, not both. This one not only does that, but provides both your score and report from ALL 3 agencies.
Continue>> Improve Your Credit Score