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When you apply for credit, such as for a mortgage or a car loan, your lender will most likely use your credit report and your score to help decide how much you will pay for that loan.  Your credit score is basically a three digit number between 300 and 850 that condenses the information in your credit report into a formula.  The credit score gives lenders a quick snapshot of the person applying for credit, whether or not they are a good credit risk, how likely they are to repay the loan, and if they have a good record of making their payments on time. The higher your credit score, the better.  A higher credit score generally indicates that you are more creditworthy.  Individuals with a high credit score will usually receive lower interest rates

Click here to listen!The most common credit scoring model is called the FICO score (FICO stands for Fair Isaac and Company, the company that invented it).  There are three major national credit bureaus (Transunion, Equifax, and Experian), and each has its own version of the FICO score. 

Your credit score is calculated by a number of factors, including:

Payment History (do you pay your bills, and do you pay them on time?) This makes up roughly a third of your credit score.

Outstanding Debt (how much do you currently owe creditors?). This accounts for approximately 30 percent of your score.

Length of Credit History (the longer you’ve had credit the better) This makes up around 15 percent of your score.

Number of Inquiries (How often is your credit report accessed?  You don’t want too many of these, because it may indicate you’re in financial trouble and seeking numerous loans.  This is about 10 percent of your score.

Types of Credit (This comes into consideration if you don’t have much information in the other categories.  It gives lenders a picture of how your current debt is distributed.  This amount is considered last, and can make up to 10 percent of the score.

Improving Your Credit Score
While a poor, or low, credit score may make harder to obtain credit, there are some things you can do to improve your credit score.  Here are a few hints:

The best way to have a healthy credit picture is to use your credit carefully.  Use it when you need it.  Make payments on time.  Keep balances low.  Good credit is a powerful tool, so use it wisely.

Getting a Copy of Your Credit Report
Under the Fair Credit Reporting Act the three nationwide credit bureaus are required to provide you with a free copy of your credit report, at your request, once every 12 months.  This report will include information on where you live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The credit bureaus have set up a central website from which you can order your free report.  This site can be found at the link below:

Or you can call 1-877-322-8228 to order your credit report.  Don’t contact the credit agencies directly, since they have set up the central location to field the free requests.  The Fair Credit Reporting Act entitles you to one report from each of the agencies each year.  You may order one at a time, or all Click here to listen!three at once.

When a "Free" Credit Report Isn't Free
Watch out for sites or companies that may offer a free credit report, some may even have the word "free" in their names.  These may actually be credit monitoring services that provide you with a credit report in return for signing up for their product.  They may seem free, but often will be only a free “trial period” that automatically becomes a paid service if you don’t cancel it during the trial period. is the only free service established through the Fair Credit Reporting Act.  

For more information about the annual free credit report offered under the Fair Credit Reporting Act, or other credit report topics, visit the Fair Trade Commission’s webpage on the topic at the link below:

Fair Trade Commission – Credit Report Information