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Understanding Your Credit Score

A credit score, often called a FICO, is determined from information listed on your credit report. FICO is an acronym for Fair Isaac and Company, the developer of software used to calculate credit scores. Used by insurance companies, lenders and even employers, your credit score is a simple three-digit number with a lot of societal and financial clout.

Reviewing your credit report is a good first step when taking a hard look at your finances. You can get a free copy once a year. Here are some points to consider about your credit report:

  • Your credit report contains personally identifying information including your name, date of birth, address and Social Security number. The report reflects inquiries made by lending and other institutions in the past two years, negative items in your credit history and a summary of your credit accounts.
  • Calculated from factors in your credit report, the major reporting agencies give you a credit score that may range from 300 to 850. The score is based on the amount of money you owe, new credit, types of credit already in use, length of your credit history and your payment history.
  • There are a number of ways to improve your FICO score, including ensuring bills are paid on time, avoiding high credit card balances and turning down unneeded new credit accounts.
  • Along with bankruptcy, making consistently late payments lowers your credit score, too. If considering a major loan, start working to improve your FICO score well in advance of making your application.

Raising a credit score takes time, patience and careful budgeting. If debt is overwhelming, bankruptcy may be an option that can eventually give you a fresh start on a solid financial future — and a good credit score.

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