How to Improve Your Credit Score – Removing the Mystery

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How to Improve Your Credit Score – Removing the Mystery

Credit Score For whatever reason the financial system in the United States is not well understood by most people. In particular the credit system and how it works is an area that most people simply don’t understand. While the average consumer doesn’t need to know the dynamics of how banks make money and decide how to loan invest their money (actually your money), consumers should know how their credit score is calculated and what steps they need to take to improve their credit score.

At its simplest level an individual’s credit score is basically a history of their financial transactions, including their taxes paid, mortgage payments, car payments, and any other transaction that involves something other than a straight cash transaction. The computer systems that run the credit reporting system have huge amounts of data on every individual who has ever applied for a loan or credit card, or for that matter who has ever paid a bill. For example, your utility bills are all a form of credit. The utility companies provide you with their service (electricity, water, gas, etc.) and then bill you for the amount of that service you’ve have used, usually on a monthly basis. So these companies are essentially extending credit to you for their services since they pay for them (a type of “inventory”) before they get paid by you. If you don’t make your utility payments, or are consistently late with those payments, that history will eventually get reported and show up as what is know as a “derogatory”, or negative, entry that lowers your credit score.

Derogatory entries on a credit report reduce your credit score by varying amounts. Unpaid medical bills, unpaid utility bills, late payments on mortgages, or defaults on credit cards are all forms of derogatory entries. Of these, your mortgage payment history (if you’ve had a mortgage) is the one that has the biggest impact on your credit score. The assumption here is that if a person is late with their mortgage payment or doesn’t make their mortgage payment at all, they are most likely not paying any other bills since having a roof over one’s head is considered a basic necessity today.

How to Improve Your Credit Score – Removing the Mystery on Finance and Business

Tags: Credit Card, credit score, financial transactions