Tips on Credit Information

Information from the United States government, national credit bureaus and financial publications can help you understand how to manage your credit to maintain a good credit rating. The most useful information provides insight into how credit-scoring models work and includes realistic steps consumers can take to improve their credit scores.

Credit Scores

Creditors and lenders use credit scores when they're deciding whether to approve a credit or loan application. They also use the scores to determine what interest rate an applicant will pay. That's why it's important to know what type of information is used to calculate your credit score. Your bill-paying habits, the amount of debt you have and the length of time you've had your credit and loan accounts are usually taken into consideration when your credit score is calculated. Credit-scoring systems compare such information with consumers who have profiles similar to yours. The scoring systems then essentially award points for each factor that suggests you're likely to repay a debt.

Scoring Models

There are different types of credit-scoring models, but they have many factors in common. You can avoid unintentionally lowering your score by knowing which factors are usually given the most weight by scoring models. Consumers' payment history is typically the top-rated factor in scoring. For example, 35 percent of the Fair Isaac Corporation's, FICO, score is based on a consumer's payment history. Therefore, delinquent accounts that appear in consumers' credit files can significantly lower their scores.

Credit Reports

Advertisements that claim bad debts can immediately be erased from credit files can mislead consumers. According to the U.S. Federal Trade Commission, no one can arbitrarily remove accurate, negative information from a credit report. Negative information about bad debts can remain in people's credit files for at least seven years. There are ways to improve your credit score, but there's no way to determine how much any action will boost scores because of the differences in scoring models. Still, scoring usually rates similar factors, such as the balance on your credit cards. Your score will likely drop if your credit cards are close to their limits. The national credit bureaus Experian and TransUnion provide tips on their websites about improving credit scores.

Credit Offers

A credit card offer you receive in the mail may not be the best deal you can get. You may be able to get better rates by shopping online for credit cards, especially if you have a good credit rating. The "Kiplinger" magazine website includes a search tool that allows users to hunt for credit card deals that are tracked by Bankrate.com. The search tool is particularly useful because it allows people to look for cards based on their goals and the type of credit history they have. For instance, someone with a good credit history can search for the cards that offer the best deals on balance transfers.