Thanks to a new federal law put into place in September of 2005, everyone is entitled to one free credit report each year. This is so that you can verify that your report does not contain any false information, and so you can see how your credit rates. Getting your annual free report is as easy as going to the authorized source, www.annualcreditreport.com and requesting one.

Once you have your free report, what in the world do all those abbreviations, numbers and codes mean?! The most widely used system for scoring is the FICO score, developed by The Fair Isaac Corporation, and the number determines the risk to extend credit to an individual. Credit reports are usually divided into sections; identifying information, public records, credit history, and inquiries to your credit report from creditors looking to extend you credit based on your credit score. The identifying information includes your name, address, and social security number. Make sure they are all correct. Usually this section will also include a list of your previous addresses, your date of birth, phone number, spouse’s name, employers information.

The public records section is the section you hope has no information. This is where a bankruptcy or judgment would show up on your report, and it will harm your rating more than anything else on the report, and take longer to repair. The credit history section is the most confusing. It will list every creditor you’ve ever had business with, including accounts that have been closed and those that remain open with no balances, and accounts that you are currently making payments on. Depending on which credit reporting agency you get your report from, this section will actually be displayed differently on each report.

Experian’s report displays it in “English”, and states everything in common sense terms, like “pays on time”, “pays 30 days late”, etc. Reports from other agencies might use numerical codes in a table that you have to refer to another page to find out what each code means. Either way, make sure you agree with each creditors reporting of you since this is how your score is determined. If you have accounts that you do not have the credit cards for anymore, or a loan that has been paid off but remains on your report as a revolving credit (money available to you as you pay it down), call and write each company to ask them to close the account completely and report that to the credit agencies. Otherwise, it appears that you have all of that money available to you, and that goes against your debt to income ratio.

The section called “inquiries”, and it includes a list of everyone who has ever looked at your report. This will include credit companies you have contacted to request a credit card or loan, but it will also include what is considered “soft” inquiries. Soft inquiries are any promotional offers, such as a retail store checking into your credit history to determine whether or not to mail you an offer for their credit card.

Soft inquiries do not harm your overall credit score.

You can also get a copy of a credit report any time you’ve been denied credit. This is because there is always the possibility that there are errors in your report, which prevented you from obtaining the credit you applied for. Regardless of how you get your report, take the time to look it over and find any discrepancies (immediately call the creditors in question and straighten it out) and close out any accounts that you no longer use but are showing open and available to you on your credit report. Having your report will show you where you stand if you’re considering going for a mortgage, new vehicle, or other loan.

Once your feel that you have a good understanding of your credit, it is time to apply for a loan. If you are looking for a car loan, apply for a car loan. If you are looking for a home loan, Apply for a Home Loan.

When you apply for credit one of the first things almost all credit officers do is check your credit score. Although not all of those officers explained to us what a credit score is, we are all rated according to it and the offers we receive were all dependent on that score. This is why understanding your credit score is of utmost importance, and for future reference at least basic knowledge should be acquired. In the following paragraphs we will tackle understanding your credit score, realizing what your credit score means and analyzing what you can do to improve it.

Your credit score is actually computed as an average of several elements from your credit report.

This report is typically broken into five different sections and each of these sheets will represent a piece of the final score. Each category of credit report information occupies a certain percentage in the final score.

To begin with, it is essential to say that the highest percentage is taken by the category made up of credit and payment history. An issuer will look at all types of payments: credit card payments, retail accounts, installment loans and so on. He or she will particularly look at the number of delayed or not paid payments, time passed since the last skipped payment, number of problematic accounts as compared to accounts in good standing.

The next thing taken into account when computing the score is the total amount owed. These amounts are looked at in their absolute value and also in proportion to the credit limit.

The number of accounts with balances is also relevant. The third thing issuers analyze is credit history, or how much credit you’ve had and for how long.

Understanding your credit score is essential to you and you need to know that the length of all credit lines and their activity will be monitored and will matter significantly in the final credit score.

Also, remember that all scores take into consideration recent credit activity. This category includes number of credit inquiries, new opened accounts, their amount, the time since they were opened and of course reestablishment of credit history if there were any issues in the past.

Last, even if many people do not regard it as important the type-element is also significant – that means that the type of credit line you have (credit card, installment, mortgage) also plays a role (about 10% of the final score) in computing your credit score.

You also need to understand that your credit financial report is the basis of computing your score. Each of the above mentioned elements is specific to every one of us, and as such if for some people amount owed is the major factor for others credit history is essential, therefore it is impossible to give exact percentages as to how much an element weighs in the final credit score.

Understanding your credit score, none the less, is not the only important aspect, managing it is also important. You will be able to improve your credit score if you follow a few simple tips. First of all, try to pay all the bills in time. This is more important than any of the other factors. If it’s not possible to pay on time you can usually get away with paying the bill within a 30 day window of the due date. If you miss this date it is almost certain to end up on your credit report. Keep balances low on your credit cards and other revolving credit and try to pay off debt. Also avoid moving credit from one credit card to another. The low intro rates many companies offer for balance transfers can be very helpful, but it takes a toll on your credit score. It is also recommended that if you plan for applying for important credit soon, avoid opening too many other new accounts. When in doubt, hire a financial consultant. Most people may see this as an expensive luxury that they can’t afford, but in reality financial consultant prices are fairly reasonable. Even a single visit can help you drastically improve your credit score, and if that results in a lower interest rate on a large loan it will more than pay for itself. A consultant will also be able to explain the credit score better.

All in all, what you need to know is that credit score influences depends on your credit report and it directly influences your credit payments and amounts. The higher the score the lower the interest rate and the payment will be. Taking into account the importance of this indicator, understanding your credit score will automatically mean you have more chances to improve and make it higher and therefore benefit from better loans.

If you have made mistakes before, but now you want to make your credit better, the best thing you can do is get a new loan and make your payments on time. The on time payments and perfectly paid accounts will help you reestablish your credit, and help you boost your score over time. Apply for debt relief with JumpStartMyCredit.com for one of our many loan or credit repair options. Your credit can be better, and JumpStartMyCredit.com can help you.