Maintaining an excellent credit score can be the difference between retiring wealthy and not being able to retire at all. Yet, I see so many people do not even know what a credit score is. Your credit score is a measure of risk. Lenders want to know the probability of you paying them back on time. To do this they assign a score that ranges from 0-850. Typically a score of 700 or more will give you a great interest rate. Your score is broken down as follows: 35 percent is your Payment history, 30 percent is your amounts owed, 15 percent is the length of your credit history, 10 percent is new credit and 10 percent is the type of credit used. It is the old risk vs. reward trade off. The higher the risk the more interest lenders will demand for taking that risk. The difference in the interest rates can be huge! You can start to monitor your credit for free by pulling your report from “the big three.� The “big three� websites are as follows: www.transunion.com, www.equifax.com, and www.experian.com. You are allowed one free credit report from each of these credit reporting agencies a year. Be aware that they will give you the report for free but they will charge you for your score. You want to look for any errors in the information on the reports. To learn about your rights you can also go to www.ftc.gov/os/statutes/031224fcra.pdf. This website will explain all the right you have due to the Fair Credit Reporting Act. If you want to win in the credit score game it helps to know the rules. There are many great books that can help you understand how credit works. See the suggested readings below.
Resources:
Your Credit Score by Liz Weston
Repair Your Own Credit by Bob Hammond
Best Credit by Dana A. Neal
Credit Scores and Credit Reports By Evan Hendricks
Non-profit organizations
National foundation for consumer credit (NFCC)
Debt counselors of America
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