Credit score is a number varying from 300 to 850 and designates a person’s credit worthiness and the risk involved by giving a loan. Credit score is determined by the information provided in your credit report, which is drawn from credit bureaus and agencies based on your past loan payments.

Credit score and credit report are two important factors that influence the successful completion of a mortgage loan process. It is important for the consumers to know the basic facts about credit scores and the way how they impact your loan deal. Recent surveys indicate that only 25-30% of consumers are aware of the fact that credit scores imply credit worthiness and risk involved with them.

When you transact with banks and other financial institutions, they prepare a file on your bill payments, litigations and bankruptcy. This file shows the credibleness of your repayments for a loan or a debt. There are few companies called Consumer Reporting Agencies (CRAs) that trace the information and keep a track on your financial activities. Of all the scores available in the country, FICO score is the most popular one. This is worked out on the scoring model developed by the Fair Isaac and Company (FICO). FICO score is supplied by the three major credit reporting agencies including Equifax, Experian and TransUnion.

Many lenders such as banks, credit card companies and other lending companies depend on credit scores to assess the possible risk involved by lending money to consumers. Credit scores are also used by lenders to determine the loan qualification, interest rate, and credit limits. A consumer with a score above 700 is charged relatively low rate, and the one with a score over 760 is charged the lowest rate. Generally, consumers with scores below 600 are charged high interest rates and if your one with poor credit score, you may not be able to borrow at all. The medium credit score in the United States is 723 whereas you can draw creditors your score is above 620.

According to the US Congress act on Fair Credit Reporting, CRAs have to provide correct and complete information to businesses to use in evaluating the applications for insurance, credit or employment. Credit reports are only provided to those with a legitimate business need. The unfavorable information provided by CRAs on issues such as bankruptcy or lawsuits against you would cover the past 5 to 10 years.

Normally, CRAs provide information they have kept in the credit report on a request. They also disclose the source of the information, and it is your right to know the names of those, who requested your information in the recent past. If your credit application is denied on the information provided by a CRA, you can request a free credit report within 30 days after the denial.

1. Always be conscious to build a better credit history.

2. Pay your monthly bills and payments in time and avoid any delays.

3. Clear your older debts at the earliest if you have any.

4. If you are paying higher monthly payments, talk to your creditor and choose a lower monthly payment option to reduce your financial strain.

5. When you have charge-offs in the past, settle down with your creditor for removing them from your report. Also, talk to creditor to exclude late payment entries after you started payments in time.

6. It is better if you focus more to lessen your outstanding debts.

7. Decide priorities and pay off your high interest loans in first place.

8. Maintain your revolving credit over 50% of your available credit and keep your balances at a lower level.

9. Do not rush to close your unused/old accounts with an intention to lower the available credit. This will result a raise in your debt-to-credit limit which will have negative impact on the score.

10. Check and confirm whether the accounts you closed are reported as ‘closed by consumer.’

1. Do not open many accounts within a shorter period if you don’t have a credit history more than 3 years. Several accounts in a short period indicate your inefficiency in organizing the credit.

2. Try and manage your credit efficiently, maintain the average credit limit.

3. Use your past experience and avoid opening more accounts which will bring you troubles.

4. Prepare your budget with proper care based on your income and credit.

5. Do not go for several inquiries about your credit within a short span which will obviously have a negative impact on your credit history.

6. Avoid too many installment loans that may lessen your score.

It is advisable to have fixed payments for several credit cards and installment loans as they help you raise the score when you can handle them effectively