Credit Scores: How They Work
The most widely used score is the FICO score, generated by the Fair, Issac Company. Scores are computed based on data provided by the three major credit bureaus, Experian, Trans Union and Equifax. Scores cannot use demographics such as race, color, religion, national origin, gender, age, marital status, or receipt of public assistance under the Consumer Credit Protection Act.
Improving Your Credit Score
Bills. Pay your bills on time. Apart from circumstances like foreclosure, bankruptcy or tax liens, nothing has a greater negative impact on credit scores than late payments. A payment received even one day late is technically considered 30 days late. Pay your bills promptly to avoid late fees and hits against your report.
Debt. Make it a priority to pay down existing debt as quickly as possible within your budget limitations.
Credit cards. Limit the number of credit card accounts you maintain-fewer is generally better. Keeping a few charge accounts active and paying the balance in full by the due date is the optimum scenario and will raise your score. If you must carry a balance, keep overall balances low and use credit cards only for emergencies or purchases that have long-term value. "Maxing out" your credit cards negatively impacts your credit score.
Don't apply for credit you don't need. Applications show up as inquiries on your credit report, indicating lenders that you may be taking on new debt. Numerous inquiries on a credit report can lower your score. Use the credit you already have to prove your ability to manage credit responsibly.
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