Credit Information & Credit Reports

Each day, you're bombarded by advertisements claiming that companies can clean up your credit, raise your credit score or provide you with free credit reports. Credit is a big deal because certain authorized companies and individuals use it as a basis for major decisions that impact your life. If you want to take control of your finances, it's vital to understand what your credit means and how it affects you.

Credit Score

Your credit score is made up of several different factors. The largest factor is the timeliness of your payments, which makes up 35 percent of your score. Payments that are late by over 30 days could bring down your score by as many as 110 points. Your debt utilization ratio comes next, making up roughly a third of your score. Debt utilization is the relationship between the amount of debt you have and your credit limits. The length of your credit history is 15 percent of your score, while new credit and the diversity of your credit each account for 10 percent. Applying for too much new credit signals that you're desperately looking for money; however, opening a few new accounts over time is beneficial to your score.

Credit Report

Your credit report is an important part of your identity, and it's vital to make sure the information on your report is accurate and up-to-date. The Federal Trade Commission recommends using the Annual Credit Report website, which is run by the three major credit bureaus: Experian, Equifax and TransUnion. Other so-called "free" credit reporting websites may end up charging you money for their future services, warns the FTC. Once you receive your credit report, review it carefully for any errors. Report discrepancies in writing to both the creditor and reporting credit bureau, along with copies of any supporting documentation you may have. Issues are generally reviewed within 30 days of receipt, unless the credit agency deems them as frivolous.

Uses

Lenders, landlords and even employers use your credit report as a way of understanding your level of financial---and general---responsibility. When you apply for a credit card or a loan, the lender looks at your score to get a quick read on your credit worthiness, then at your credit report to get a better understanding of what factors led to that score. Any bankruptcies, debt management plans, defaulted loans or other negative information may signal to lenders that you've had financial problems in the past, which they will take into consideration when deciding whether or not to lend you money.

Considerations

Anyone with a low credit score may benefit from credit counseling. Reputable non-profit credit counseling agencies are listed on the National Foundation for Credit Counseling website. A credit counselor will help you to create a budget, identify your financial roadblocks and provide you with solutions to resolving your debt so that you have the ability to boost your credit score.