Credit Ratings 101

The Importance of Knowing Your Credit Score

By Cara J. Stevens

Unless you're looking at a huge, unexpected chunk of cash, no one is fond of surprises when it comes to finances. That is why "Know Thy Credit Score" should definitely be listed among the 10 Commandments of personal finance.

If you've ever applied for a charge account, a personal loan, insurance or a job, there's a file about you. This file contains information on where you work and live, how you pay your bills and whether you've been sued, arrested or filed for bankruptcy. All of this information is compiled by a credit reporting agency and assigned a numeric score based on the model of a perfect loan candidate. "A credit score is a snapshot of your credit risk at a particular point in time," says Equifax, one of the leading credit reporting companies. "The higher your credit score, the more likely you are to be approved for loans and receive favorable rates."

"Good credit is important not only to get a loan, but to get a favorable interest [rate]on a loan," says Michael Killian, the About.com Guide to Credit and Debt Management. "The less the risk a consumer is, the better offer of interest the consumer will receive. But additionally, credit scores are now used quite often in employment, promotion, rentals and many other areas of our daily life."

The first thing you need to do is get your hands on your credit reports. Because there are a number of different credit reporting agencies out there, more than one agency may have a file on you, and each may be slightly different.

First on your list should be to contact each of the three major credit reporting bureaus: Equifax (800-685-1111,www.equifax.com), Experian (888-EXPERIAN,www.experian.com) and Trans Union (800-916-8800,www.transunion.com). Alternately, you can contact a company such as MyFICO.com

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