Reading and understanding your credit report maybe difficult for many people. You really do have the power to take the mystery out of understanding what your credit report is, how it affects your life, and what you can do to improve that all important credit score. Let's begin with some basic definitions.

What Is A Credit Report And Why Is It So Important

This is a written record of your financial transactions. It details the amount of your current debt, and how well you are repaying it. It also includes a record of past debts, and how/if they were repaid. Every open account you have will be listed, as well as any record of bankruptcies, foreclosures and judgments.

Credit Score

Based on the details in your credit report, you will be given a numerical score, that reflects your level of 'credit worthiness'. This number is based on:

* The number and types of accounts you have open. * How long you have held the accounts. * How many late payments you've made, and just how late. * Your current total accumulated debt. * Any attempts you've made to open more accounts.

Every company you apply for credit with will examine this score, to determine how likely you are to repay them any money they advance to you.

Would you like to apply for a home or auto loan? A credit card account, or home improvement loan? Your current credit score will be the biggest determining factor in whether your request is approved. Currently the average credit score is a 678. Most lenders feel that a 650 and above is good credit. The higher your score the better your credit is viewed by lenders. Which means lower interest rates.

The Big 3 Credit Reporting Agencies

*Equifax, (equifax.com) based in Atlanta, Georgia. *Experian, (experian.com) based in Costa Mesa, California. *TransUnion, (transunion.com) based in Chicago, Illinois.

Each of these nationwide credit-reporting agencies maintains a credit report on you. Since you have no way to know which one of these agencies a potential lender will contact, you need to keep track of the info contained in all three reports.

How To Improve Your Credit Report Score

Your credit report is a living, breathing document, changing with every entry made. If your score is bad now, there are a few things you can do to improve it.

* Examine each report thoroughly to make sure there are no mistakes. If you find a company listed with debt outstanding, but you know you've paid it and have a receipt or cancelled check to prove it, you can make a challenge to that item on your credit report. The company you are challenging has up to 90 days to respond and defend the item, or remove it from the report. You should resist the urge to make a challenge without proper documentation of your payment.

* Close old credit card accounts, that you are not using.

Even if you aren't actively charging on them, these old accounts that remain open still add up in your total amount of credit available. This total line of credit is compared to your income, and alerts lenders to the fact that you can become overextended any time you choose.

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