Knowing your credit score is only half the batle. A solid understanding of how the credit system works will be a great asset as you try to improve your credit. Understanding how you got in the position you're in will help you understand how to not only get out out, but stay out. Many people think that once they've established bad credit they're stuck with it. The truth is there are steps you can take to start rebuilding your credit.
To start the process there are a few things you need to know. The credit bureaus, credit reports, and credit scores are all important to understand. It can be very confusing to the average person, but we have broken it all down for you here.
Everyone has heard of the credit bureaus like they're some judge and jury somewhere that determines your finances. The fact is there are three: Equifax, Transunion and Experian. They collect information from your creditors and put it in your credit report.
Your credit report is the document that lists all of your credit activity, good and bad. Every time you make an on time payment it is noted on your credit report. At the same time any late payments are noted too. This is why keeping a clean credit report is essential.
Based on the information in your credit report a FICO score is calculated. Perspective lenders such as car dealers and mortgage companies use this number to determine if they should offer you a loan, of what the interest rate should be. Your credit score is a three digit number between 300-950. The higher the number, the better your score.
There are several factors that go into determining your credit score. Since each credit bureau calculated their own score, they vary slightly. The information in your credit report provides the data to calculate your credit score, so when your credit report changes so does your credit score.
The million dollar question: How do I improve my score? Since you understand how your credit score is calculated you can make changes to how plan your finances.