Understanding Your Credit History and Fixing Bad Credit

Having good credit is an essential part of successful financial functioning today. If you haven't already established your own credit, you need to start! For those of you who already have credit, and want to improve it, you might not know how. Even worse, if you have filed for bankruptcy or just have bad credit, you may feel there's nothing you can do about fixing it. Throughout this website by Family Credit Management Service, you will learn the steps you can take to establish or salvage your credit - but first things first. What does "having credit" mean?

Having credit means having a specific financial history of borrowing money. You may borrow money from a bank via a credit card, take out an installment loan for a car, or taken on a mortgage to buy a home. If you have borrowed money and paid it back in a timely fashion, you've established "good" credit. "Bad" credit, on the other hand, results from, among other things, borrowing money but not paying it back in a timely fashion, or going over your credit limit. See what types of accounts are being reported to the credit bureaus by pulling a free credit report each year.

Good and bad credit is reflected in your credit score. Your credit score is a number that lenders use to help them determine financial risk. Increasingly, insurance companies, landlords, employers, and even utilities companies look at your credit score. You can think of your credit as a reflection of your moral worth in financial terms. Are you someone who is financially responsible? Are you financially trustworthy? The answers to these questions translate to financial virtue or vice. Your financial status is reflected in your score, which varies depending on which scoring model is used.

FICO (Fair Isaac and Company), the scoring model used by the major credit bureaus, ranges from 350 (the lowest rating) to 850 (the top rating). No certified credit counselors with Family Credit Management Service have seen anyone with the top rating, though Fair Isaac says you can get there. The average good score is 700, and the higher your score, the less you'll be viewed by creditors as a risk. This positive score usually results in significantly lower interest rates than those with negative scores. Not sure what your credit score is? Pull a free credit report at www.annualcreditreport.com and pay the couple extra dollars to learn your score.

The system that calculates your credit score hasn't been around that long - since the 1980's - but it is a crucial element in your life, whether you know it or not. No credit? You likely won't be able to buy a car or a house. Bankruptcy? Bad credit? You likely will pay more for something than someone with good credit. So, it's important that you establish credit, if you don't already have it, or manage what you do have.