Having a good credit score starts with understanding how the credit industry works.  There are many players in the credit game who all have a stake in collecting or using your information. Here we’ll start by laying out the basic foundations of all credit knowledge.

Credit Reporting Agencies

Three major private companies known as “consumer reporting agencies”, Equifax, Experian and TransUnion, collect information about your identity, loans, charge accounts, public records and more. They then compile this information and sell it to lenders, creditors, collectors, and even you. To make quick decisions, “credit scores” were created to translate the information on your report into a comparable number. Your credit scores are easily the most important factor considered when credit grantors review your applications for credit.

Credit Scoring

Credit scoring is designed to be indicative of your financial risk at any given point in time. It’s a complicated process involving complex algorithms and formulas with one purpose: to predict your future behaviors! The most prominent and important credit scores are those that come from FICO (Fair Isaac Corporation) as more than 75% of lending is driven by the scores they calculate alone. As a matter of fact, the FICO model is used nearly 700 times each second!

How Do I Get My Scores?

You may have seen advertisements and offers online to see your credit scores. Be very careful! You may see “Personal Credit Scores” or “VantageScores”, but since 75% of lenders only use FICO (Fair Issac Corporation) scores, they’re the only ones you should consider or purchase for that matter. The credit bureaus have attempted to create their own brands of credit scores available on their websites and across the internet, but these do little more than confuse consumers. FICO’s scoring model ranges from 300-850, with a higher score indicating a lower risk and a reduced chance of your defaulting on payment. You’ll have three FICO scores: one for each bureau. You can obtain your FICO credit scores from CMAC, a mortgage banker, broker, or Fair Isaac Corporation’s site. If you just want your reports, you can get them once free per year (no strings attached) through “The Central Source“.

Improving Your Scores

Each FICO credit score will list out four “reason codes” to help explain the score’s position. Listed in the order of the most influencial factors, you can use these codes as a guide for addressing the factors drawing your score down the most. For detailed countermeasures to improve your scores, check out our ebook or the personal credit score coaches at CMAC.

With a little bit of advice, even someone with a poor credit history can improve his/her situation. If you’ve previously damaged your credit, it will take some time to re-establish your credibility with lenders, but the effort will be worthwhile in the long run.