There are three major credit reporting agencies in the U.S., they are Experian, TransUnion and Equifax. Apart from collecting financial data on virtually everybody. Each of them also are responsible for generating a credit score. So, there is the full-blown credit report which lists all of your creditors, how often you pay, what you owe, and so on. This part of it can fill up page after page of data. Then there is the credit score. This is a single number that attempts to encapsulate the entire report into an objective score that applies equally to everybody.
When it comes right down to it, the three big credit agencies are responsible for the information that is shared with those who request access to your credit report. In turn, your creditors will use that information to decide what terms they will offer you. To put it bluntly, these credit score companies have a lot of power when it comes to American consumers. For this reason, it's a good idea to do your best to maintain a good credit rating and fixing any errors on your report.
While it's a serious thing, and can have a big impact on your life, it's relatively easy to understand the basics of getting a good credit score. Here's what you need to know:
The most important thing you can do for your credit score is to religiously pay all of your bills on time. As soon as you get credit or another loan, start making the payments right away. you may even want to make them a few days early to ensure they will be processed on time. You should pay the full balance of any bills that require it (such as telephone and utilities), and at least make the minimum payment on those bills that are intended to carry a balance. Pay as much over the minimum whenever possible. Your payment history accounts for the largest part of your credit score, so don't take it lightly.
After making all of your payments on time, the next best thing to do is to spend less than you earn. This extends to not buying things that are too expensive. When making a purchase on credit, do not look at the monthly payment, but what the total cost to you will be. A common mistake is to see something you can't afford, say a $5000 hot tub, then calculate the monthly payment. You may be thinking you can afford $200 a month, but not the $5000. Be careful! That $200 month is probably for 4 years, and that adds up to $9600! Surely, if you can't afford a $5000 hot tub, you can't afford to spend nearly twice as much on it. Living within your means will also keep your debt-to-income ratio lower, which is also good for your credit score.
The final thing you can do is get a copy of your credit report from each of the big three credit reporting agencies on a regular basis. Check for any errors and report them right away. If the agency finds you are correct, they will remove the mistake from your report. You have to check all three as not all creditors use all three agencies. Each one will have slightly differing records, and it's best to be thorough.