Credit scores have become incredibly important as the use of credit has increased. The determination of an individual’s credit score is based on several factors. One factor is the ratio between total revolving (credit card) credit with the amount of debt, with lower credit going to those who have little difference between their credit level and debt. Another factor is paying bills on time, which is a demonstration of how responsibly people utilize their available credit. One final important consideration for credit score companies in determining consumer credit scores is the length of credit history. A longer credit history means a better credit score because of higher financial maturity for the credit holder. Credit scores are based on a scale between 450 and 850, with a higher credit score representing better credit. The average American credit score is around 650.

Finding your Credit Score

There are many different resources for figuring out credit scores. Probably the most utilized credit score resources are the credit card companies themselves, with providers like Washington Mutual providing partnerships with credit scoring companies to give their customers the best service possible. However, credit scoring companies like Experian and Equifax give more comprehensive explanations not only of the credit scoring process but how to improve credit and to be fiscally responsible. Finally, FICO, provider of the most used measurement of credit health, offers similar tips as other credit score providers with the added benefit of being respected in the business industry for their reliable financial measurements.

The Importance of the Credit Score

Credit score is one of the most important aspects of personal finances, because it influences greatly the amount of interest a consumer has to pay for a home mortgage, a car loan, or any other type of personal loan. Car dealerships, banks, and others that provide consumer loans are given access to a consumer’s credit score when a consumer fills out an application or other form granting access to personal information. These businesses then use their own formula for determining the corresponding risk to an individual’s credit score. The difference between a poor and an excellent credit score can mean savings of thousands of dollars on big ticket items like homes, cars, and other major consumer items. As well, credit scores can be used by rental property owners to determine the rental eligibility for apartment and condominium applicants.

The Benefits and Detriments of Credit Scores

The benefit of a good credit score is that it is easier to save money and invest in higher price items, like cars and homes, and interest rates are significantly lower for higher scores. As well, maintaining a good credit score is a measure of how successful and responsible a person, perhaps more so than the amount of money in checking or savings accounts. Bad credit scores can bar some people from renting an apartment, purchasing a car, or even getting certain jobs (in particular, those requiring financial responsibilities like bank personnel).

Improving Poor Credit Scores

Bad credit scores are surmountable, no matter how far into debt an individual may be. One approach to resolving debt issues is to use a debt consolidator like Freedom Point, which offers lower monthly payments through the consolidator to credit providers in exchange for a low one time payment and a longer repayment schedule. These methods are probably best used by those who have more than $10-15,000 in debt and have trouble paying minimum monthly payments. Indeed, Freedom Point requires a certain amount of doubt in order to secure permission from credit providers for longer repayment schedules.

For those who want to try and improve their credit score on their own, there are several simple steps that can be taken to remedy credit problems. First, making some sacrifices and paying down revolving credit card debt is the most important way to improve credit scores. Another way is to shift debt around to other, lesser used credit cards as you pay down your total debt in order to improve the debt-credit ratio. While this may seem strange to people who feel like they are making progress on a particular line of credit, it is more beneficial in the long term. Finally, once credit cards are paid off, people shouldn’t close all of their lines of credit because a long credit history provides the base line for credit scores.

Where to Get Free Credit Scores

The problem that most people encounter with credit scores is that while one report from a bank or credit card company may not be expensive, getting monthly reports can get a bit pricey. In addition to the price problem, securely sending your information over the Internet can be a sometimes harrowing experience for the uninitiated and there are plenty of web sites that have suspect credentials. That is why the Federal Trade Commission (FTC) set up the Annual Credit Report (www.annualcreditreport.com) program. The Annual Credit Report program teams the three major credit reporting companies, Equifax, TransUnion, and Experian, to guarantee a free credit score report from each of the three companies once per year. For those who use the online credit score form, the free report is accessible instantly, with a two week mailing period for those who order by phone or email.