by Arlene Hauben

Created on: January 03, 2010

A good credit score is important if you are planning to buy a car or purchase a home, and will need to apply for a loan or mortgage.  If you have won the lottery and have lots of cash and don't need to borrow money, then you don't have to obsess about your credit score, as many people do.

Most people understand that when you charge at a department store or buy gas and pay with a credit card, you are receiving credit.  That means you are financing the purchase for a certain amount of time. The credit you are getting allows you to buy something now and pay for it later.  To obtain this credit, you pay a premium, known as interest.

Banks and lenders like to give credit because they make huge amounts of money from interest payments.  The amount of interest they charge an individual is based on the person's credit score.  This is a number that lenders use to assess your credit worthiness and it determines if they will provide you with a credit card or loan and at what interest rate.

Your credit report is maintained by three national credit-reporting agencies - Experian, Equifax, and TransUnion - that compile and report a surprising amount of information about you, including where you live and where you used to live, and where you have been employed.  Often, this information is out of date and in order to correct it, you have to write to the agencies and inform them of their errors.

Your credit report also contains your Social Security number, marital status, date of birth, and matters of public record, such as bankruptcies, tax liens, and any judgments filed against you.

The credit report also includes a list of creditors, banks and stores that have given you credit, and what you currently owe them.  It will include whether you paid your charge accounts and credit cards on time.  Most mortgage lenders, banks, credit unions, and finance companies will report information to the credit bureaus.

If you apply for too many credit cards in a short period to time, and too many inquiries are made, then lenders will red flag you and ask why you are applying for credit with so many lenders.  So, if you are shopping at The Gap and they offer you a credit card, and you apply, an inquiry is made on your credit report.  If you do this too many times, the number of inquiries made may hurt your credit score. 

Unsolicited credit cards that come in the mail, ones you did not apply for, are considered soft inquiries and will not

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