Numbers have different meanings. In school, you are given an “A” if you excel in a particular subject. In the real world, a 600 or 700 could have an effect on your ability to get a loan. This is called your credit score and to give you an idea, here is an explanation.

The credit score is an indicator that tells lenders if you will be able to pay the amount that will be loaned to you. The scale goes from 340 to 750 and the higher it is, the less risk the lending institution is taking because they know you will be able to pay for it with interest.

If your score is below 700, you can still apply for loan but expect to pay at a higher interest rate as this is the only way that the lending institution can be sure you will be able to pay them back.

Your credit score is calculated based on several factors. Thirty-five percent of the total score is based on your credit history. You could get a perfect score here or have a few deductions if ever you have had any late payments or bankruptcies. The more recent it is, the greater the deduction.

Thirty percent is based on outstanding debt. This may come from car or home loans, credit cards bills and utilities. If you use your credit, make sure you only use 25% of the limit or less so it does not have effect on your credit score.

Fifteen percent of the credit score comes from the length of time that you have had credit. The longer you have it, the better because this will give creditors an idea of your consumer behavior.

Ten percent of the score is from the number of inquiries you have made in the past. The trick here is not to have many inquiries. Those who do inquire frequently give creditors the impressions that you are piling up your debt.

The last ten percent is based on the types of credit you currently have. This includes the number of loans and credits that are available to you. This weighs heavily when you are just establishing your credit history.

There is no actual passing or failing mark when it comes to your credit report. However, creditors have designated 700 to be the ideal credit score you should get. Sixty percent of Americans are able to achieve this so it shouldn’t be that hard for other people.

But if you are one of those that are not able to reach it, you can still improve on your score. If you have outstanding debt, pay for it. If these are credit cards, make sure that this is paid on time.

If you are having a hard time, try to negotiate with the lender so an arrangement can be made and this doesn’t have to appear anymore on your record.

Now that the credit score has been explained, you will now be able to interpret what those three digit numbers mean when you get a copy of your credit report. Aside from looking at the total score, review each item carefully so that if there are any errors, this can be reported and corrected.

The credit score also changes annually so don’t forget to get one a new one the following year.

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