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The Importance of Your Credit Score and How to Obtain Free Credit Reports

It has always been amazing to me that so few people understand something that is as financially vital to them as their credit report. Many people have absolutely no idea of what is and isn't on their credit reports and are literally clueless about their credit score or how to obtain a copy of their credit report should they need to. These have always been important issues especially after the subprime loan crisis now, but the credit reporting industry has traditionally been less than forthcoming with consumers about how to obtain this information. Thankfully that has changed in today's identity theft and fraud ridden world, but surprising numbers of people still don't know the first thing about their own credit report and credit score.

Understanding your credit score

You may have heard the term "credit score" in the past but not had the first idea what it meant. Maybe you do know what a credit score is, but - like most people - have no idea what yours is. Or, maybe you know what your credit score is and have a general idea what credit scores are, but have no clue what your particular score means to you and, more importantly, what it means to a lender.

A credit score is a numerical value (usually between 500 and 900) that is assigned to a consumer's credit profile when it is reviewed. This is also sometimes referred to as a FICO (the system was developed by Fair Isaac & Company) score. The system used to create the credit score takes all kinds of information into account. Primarily the score is based upon your past & current credit history. Obviously paying your obligations to the agreed terms will have a positive effect on your score. Not paying your obligations will have a negative effect on your score - but this is not the only thing that can adversely affect the credit score. A high debt to income ratio (DIR) will lower your score - even if you pay all your bills on time and as agreed. A high number of credit inquiries can lower your score, as can a general lack of credit accounts. You may have heard that "no credit is just as bad as bad credit?" This is not necessarily true, but the saying is referring to the credit scoring system.

If your credit score is below 600 it is generally considered to be "bad". A score above 750 is generally considered "good". Higher and lower numbers obviously alter the consideration.

Obtaining free credit reports

There are several companies that advertise the ability to provide you with a free copy of your credit report. Avoid these as most of them are really trying to sell you something and your receipt of the "free" credit report often hinges on your agreement to purchase their services. Instead, you can obtain a free copy of your report from any or all of the three major credit reporting agencies. These are:

In most states you are entitled to a free copy of your credit report each year and in recent years the agencies have implemented explanatory information that helps you understand the information on the report. You are also entitled to a free copy of your report when you are denied credit for some reason. The lender will notify you in writing of the name and contact information of the agency which provided the information on which they based their decision. That agency will provide you with a free copy of your credit report if you ask for it.

In short, credit score is the primary factor that lenders will consider when approving or declining your loan application and the interest rates you pay. Especially, after the subprime loan crisis, the lenders are very cautious on every home loan application now. Thus, repairing your credit profile is one of the most important financial decisions you can make. If you have bad credit and would like to increase your credit score, you can engage a trusted firm to repair your credit report today!



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