How to Read Credit Rating Scores

A credit rating score is a number based on a borrower's ability to pay the bills. The credit score reflects your payment history and debt profile, and lenders make use of this information to determine the level of risk you pose if given a loan. Because your credit rating score can affect your mortgage rate and credit card interest rate, among other things, it's important to understand the significance of the credit score and how to read it.

Instructions

1

Obtain a credit report. There are three credit reporting agencies--TransUnion, Experian and Equifax--from which you can get a copy of your credit rating score (sometimes referred to as a FICO score, or Fair Isaac Corporation score)for a fee. It is always a good idea to get the copy and check it thoroughly, in case of inaccuracies, before you apply for a loan. Take a close look at your credit score on your updated credit report. It is a number that reflects your pay-back ability and adherence to payment deadlines. The lowest score is around 300 and the highest 850. Missed payments, late payments and frequent defaults on payments all add up to a poor credit-rating score. A score in the range of 650 to 750 usually gets you better interest rates on loans. Anyone with a score of 760 or above is considered the best credit risk of all.

2

Determine if you need to apply for credit to raise your score. If you think having no credit cards at all will give you a better rating, think again. Someone who has cards and a loan and manages them responsibly--making payments regularly and on time--will get a higher rating than someone without any cards or loan.

3

Don't go overboard on your spending. Keep your credit card balances to a minimum and make sure you pay as much as you can instead of paying just the minimum balance. Avoid applying for new credit cards--this lowers your credit score. Maxed-out credit cards can lower the rating by approximately 70 points.

4

Improve your score each month by keeping up with all of your loan payments on time. Missed payments have a huge negative impact on your score; repetitive late payments only serve to lower your credit score. Making payments on time every time increases your credit rating, setting you up for better loan options and facilities.