Your credit report serves as a record of past financial dealings that helps new creditors and lenders determine your eligibility for products and services. A good credit report benefits you by helping you qualify for low interest rates and credit cards with the greatest benefits. Other businesses that conduct credit checks, such as insurance companies, employers and landlords, will also view you more favorably if you carry a positive credit history.
Credit Score
Your credit score is a three-digit number that lets businesses quickly assess your creditworthiness. Each company's policies differ and while some companies check your credit score and also review your credit history, others determine your eligibility for goods and services based solely on your score. Your credit report and the information it contains determines your credit score. Although different credit scoring formulas exist, the FICO formula is the one used by most businesses. FICO scores range from 300 to 850. The higher your FICO score, the better your chances of obtaining credit and loans you apply for at the best rates.
Payment History
Your creditors report your debts to the reporting agencies and these accounts subsequently appear on your credit record. If the account requires you to submit regular payments, those payments also show up on your report. Each payment that you make on time helps boost your credit rating while late payments make you appear less reliable and hurt your credit. Because your payment history is 35 percent of your total credit score, paying creditors on time is imperative to maintaining a good credit report.
Credit Entries
The type of entries reflected on your report can influence whether or not you carry good credit or damaged credit. Credit card and loan accounts with a long history of timely payments benefit your credit rating. Judgments, bankruptcies, tax liens and collection accounts, however, are all derogatory entries that hurt your credit rating. A good credit report should reflect very little, if any, derogatory information. Derogatory entries lower your credit score and make you a higher business risk for lenders.
Credit History
Even if you have a high credit score and no negative entries on your report, a short credit history can prevent you from having the best credit report possible. Lenders want to see not only that you managed debt well in the recent past, but also want evidence proving that you have practiced positive debt management skills for an extended period. The longer your positive credit history, the greater the chance that you will continue paying your bills on time -- lowering the risk the creditor incurs when doing business with you.
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