What's in a credit score?

You're first question might be...what is a credit score?

A credit score is a number based on a statistical analysis of a person's credit files. Your credit score represents your "creditworthiness" or your likelihood of paying your bills on time. Your score is based on what banks, stores, utility companies and other creditors tell the three major credit bureaus about how much you owe and how often you pay your bills on time.

Where does your credit score come from you might ask?

If you have every had a credit card, auto loan, mortgage or even electric bill in your name, you have a credit history and a credit score attached to your name. Your credit score is based on credit report information from one of three major credit bureaus: Experian, TransUnion and Equifax.

What do you need a credit score for?

Credit scores are used by lenders such as banks and credit card companies, to determine who is eligible to receive loans at what interest rate and credit limit.

Your credit score can range from 300 to 850 with a credit score around 720 being considered "good enough" to qualify for the best rates on just about any loan. The higher your score, the better your credit and the more likely you are to get approved for a loan and a receive lower interest rate.

What are some important factors of your credit score?

- Payment history accounts for 35 percent. You want a long record of paying your bills on time with no missed payments.

- How much of your available credit you've used accounts for 30 percent. Having accounts open for a long time increases your credit score, although inactive accounts don't help as much as active ones.

- New credit accounts for 10 percent. Opening a bunch of new accounts in a short period of time decreases your credit score and makes lenders nervous.

- Types of credits used accounts for the last 10 percent. Your score will be a little higher if you have a record of repaying a range of debts such as credit cards, auto loans and mortgages.

How often can you check your credit report?

You are entitled to one FREE credit report within a 12-month period from EACH of the three credit bureaus: Experian, TransUnion and Equifax. That means you can technically check your credit report, for free, three times in one year. However, you are not entitled to receive a free credit score from the report. You will need to pay extra to receive your credit score.

To check your credit report for free go to:

annualcreditreport.com