Few people understand the impact a credit score can have on an individual’s life. A high score can mean a lower rate for a bank loan, while a low credit score can result in more expensive insurance premiums. Not only is it essential to understand your credit score, but it is also vital to understand how to improve your credit score and reap the advantages of good credit.

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First, the basics.

Creditors have been using credit-scoring systems to determine if people are a good credit risk for some time. Today, many businesses, including insurance companies, phone companies, and employers, use a person’s credit score to determine if a product, service, or employment offer should be provided.

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Credit scoring systems are complex and vary among creditors and businesses. Essentially, information collected from an individual’s credit report is processed through a statistical program that compares that specific information with that of consumers with similar profiles. The program identifies all characteristics related to risk and generates a numerical score that represents a credit score.

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The higher your credit score, the less of a risk you are considered to be. So, the higher the score, the better. The scores generally range from 300 to 850.

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You can obtain your credit score from any one of the three national consumer reporting companies. They are allowed to charge a reasonable fee, typically around $8, for the score. Since your score consists of information from your credit report, you need to ensure that your credit report is accurate.

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If your credit score is low, or you just want to make sure it stays high, follow these steps to improve or maintain your score:

• Pay your bills on time.

• Do not max out your credit limits.

• Do not apply for too many new credit accounts in a short period of time.

• Avoid having too many credit card accounts.

• Develop a credit history as early as possible to demonstrate a long record of responsibility.

 

If you find inaccuracies on your credit report, you should:

• Dispute the inaccurate information directly with the consumer reporting agency and, if necessary, with the provider of the information.

• Tell them in writing what you believe is inaccurate and provide as much proof, including copies of documents, as you can to support your position.

• The agency generally has 30 days to investigate your complaint.