Having a good credit score, also known as a FICO score, can increase your ability to obtain credit cards or loans, buy a house, rent an apartment, or find employment. In general, the higher your credit score is, the better. The highest credit score you can have is 850. However, anything over 700 is generally considered to be a good score, while anything below 620 is considered a poor credit score.

How your Credit Score is Determined

The U.S. has three credit bureaus: TransUnion, Equifax, and Experian. These credit bureaus each calculate your credit score independently using your payment history, your ratio of debt to credit, and the length of time you have had each of your credit cards or loans. The type of credit card or loan you have can also affect your credit score. The credit bureaus also take into account your employment status, how often companies request your credit report, and any bankruptcies on your record.

Because not all creditors report the same data to each credit bureau, you might have slightly different credit scores depending on which bureau reports the score. By federal law, you are allowed to request one free copy of your credit report per year from each of the three bureaus. These reports will not give you your current credit score, but they will provide you with the data the bureaus use to calculate it. You can pay to find out your actual numerical score from each of the three bureaus.

Importance of your Credit Score

People who have a good credit score easily qualify for loans and credit cards. In addition, people with a high score usually get the best interest rates, so having a high score could save you a lot of money on interest.

Employers sometimes use your credit score to make decisions about hiring or promotions. Employers are not allowed to access your credit report without your permission, but some employers make access a condition of employment. People with high credit scores also find it easier to get loans to start businesses.

Improving your Credit Score

The simplest way to improve your credit score is to pay all of your bills on time. Even a single late payment can lower your score significantly. Reducing your debt-to-credit ratio is another method for improving your score. You can do this by paying more than the minimum balance on your credit cards until you have low balances on all of them.