Credit scores are used by creditors as a predictor of how likely an applicant is to repay his or her debt to the company in a timely manner. This score is just one part of your credit report, which contains information on your use of credit and your employment and payment history. Having a good credit report increases the likelihood that you will be able to secure good credit terms.
Definition of Credit Report
A credit report contains information on all unsecured and secured credit accounts in your name, and includes activity that has taken place in the last 7 years. The information includes accounts that you have paid in full, as well as any that were discharged by a creditor.
Definition of Credit Score
One very important component of your credit report is a FICO credit score. This is a number between 300 and 800 that potential creditors use to assess your creditworthiness.
Negative Information
Information that negatively impacts your credit report and your FICO score includes late payments, charge-offs, a high debt-to-income ratio, bankruptcy, accounts that are in collection, and using the maximum (or close to) amount of credit available to you. This information remains on your report for 7 years from the date of activity, after which it is erased, except for bankruptcies, which stay on a report for 10 years.
Bad Credit Score
In general, any credit score below 580 is considered bad. If your credit score falls below 499, it may be very difficult or impossible to get credit and you can expect to pay very high interest rates.
Improving Bad Credit
The fastest way to improve a bad credit report is to pay your bills on time. If you are unable to do so, contacting your creditors to make arrangements may help and you will see your credit score begin to increase over a period of a few months of timely payment.
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