by Jennifer Brinkle

Created on: September 01, 2008   Last Updated: September 18, 2009

If you have applied for a loan or a credit card, chances are you have heard about your credit score. What you may not know is that there are several different types of credit scores used by lenders and credit reporting agencies. The most commonly used credit score, and the one to which I will be referring to in this article, was created by the Fair Isaac Corporation referred to simply as your FICO score. What many do not understand is what this score entails and how it effects you as a consumer.

Your FICO credit score is a three digit number ranging from 300 to 850 and is used by lenders in ascertaining your credit worthiness. Lenders will use this score in determining whether you are a low or a high risk when assigning credit. Having a low score (typically below 600) does not necessarily mean you will be denied credit, however, if you are determined a high risk the lender may increase your interest rate substantially.

So how do you go about improving your score?

Many people believe that by simply paying their bills on time they will have a higher score than those who do not. Whereas payment history accounts for the majority of the scoring calculation, there are other factors involved that may increase or decrease your score significantly. These factors include: the amounts owed on your accounts; the length of time your accounts have been open; the number of new accounts opened; and the types of credit used (i.e. installment loans, revolving credit, etc).

Despite what some advertisements claim, there is no overnight solution to increasing your credit score. Since your FICO score is based on information obtained within your credit reports, it is imperative that you are aware of what is being reported to the three credit bureaus: Equifax, Experian and Trans Union.

Obtaining your credit reports is easy and free once every 12 months due to a recent amendment to the Fair Credit Reporting Act. For more information on how to obtain your free reports, visit the FTC's website: http://www.ftc.gov/bcp/conline/edcams/freereports/in dex.html

Once you have received all three of your credit reports, review the information listed to insure its accuracy. Contained within your reports are four basic areas: personal information such as your name and address; public records such as judgments, bankruptcies, etc. that has been filed; a listing of your creditors including the type of account, date opened, credit limit, balance and payment history; and a listing of credit inquiries.

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