Your credit score is an indication of how likely you are to default on a loan. Lenders use this number to base their decisions on approval and interest rates. The higher your score, the lower the risk you are to a potential lender. In turn you are provided better rates. Lenders do not decide approval rates based solely on your score. There are many strategies different lenders use to evaluate you as a borrower. This comes down to the information on your credit report, and how they interpret this information negatively or positively.

Your credit score can also affect monthly payments for insurance, car loans, mortgage loans and ultimately the final price you pay on interest. Based on your credit score, lenders decide whether or not to approve you for loans and what interest rate you’re approved for. The difference between a few percentage points on an interest rate can mean thousands of additional dollars you must pay for different loans. For example, the difference between a 6% and 8% interest rate on a $25,000 car loan over 60 months can cost you an additional $1500 in interest alone!

Many people do not know this, but correcting their credit report is very important.  Not only can it save them money, but it can also raise their credit score. Removing one inaccurate credit item on your credit report has the possibility of increasing your credit score by 100 points.

Trade lines remain on your credit report for many years. Accounts where you filled your obligation and paid as agreed stay on your credit report for 10 years.  Accounts where you failed to pay as agreed can stay on your credit report for 7 years.

How your credit score is calculated:

Payment history = 35% of your score.

It is based on mainly 3 items:

1. The severity of your delinquency.

2. The amount of late payments.

3. How recent the delinquency is.

The amount you owe = 30%.

How large your debt is.

The ratio of the balance to your credit limits.

Length of credit history = 15%.

New credit = 10%.

Based on how much new debt you are acquiring.

Types of credit you have = 10%

Based on the different combinations of credit you have. (Credit cards, mortgage, department store, utilities, etc.)

Ways you can improve your credit score:

- Pay your bills on time.

- Pay down your debt instead of just moving it around.

- Don’t open new credit card accounts.

- If you have missed payments, pay the balance off and stay current with them. This will also eventually improve your credit score.