What are credit scores? Understanding your credit score report is not always easy if you’ve never looked at your credit score before. Based on numbers alone, credit scores range from 300, which is the lowest score, to 850, which is the highest score. The national average is around 732. To qualify for the ideal loan rates, lenders usually require that you’ve a 750 rating credit score. Once you have your scores in hand, you’ll also notice there is a wealth of other information regarding your debts.

The main section to look at in your credit scores report is your “Credit History” or “Trade Lines.” Your accounts will fall into 1 of 5 categories: Real Estate (first and second mortgage), Installment (car loan, regular payments), Revolving (credit cards), Collection (seriously past due) and Other. Each account will list the creditor/lender’s name and the account number. Sometimes, more than one account will be indicated on your report from the same creditor, especially if it gets sold off into collection, but only one account should be marked “open” at a time. You should be able to see when you first started the account, the type of account, the total amount owed, how much you still owe, the status of the account (open, inactive, shut, paid) and how well you have paid the account. If it’s noted “charged off,” that means the credit made efforts to collect but gave up. If you see a code like “R1,” then this generally indicates how well you’ve been at paying on a scale of 1 to 9. If you have had any late payments on your account, then you will see a little square with 30, 60, 90 or 120 in the box, indicating how late you were. If you see a green OK and a 0, you are in good shape with high scores. If you see “charged off,” “bad debt” or “placed in collections,” then your account went 120 - 180 days past due and was sold off to debt collectors. Charge-offs and Debt Collections are bad since these poor credit scores remain on your report for seven years.

The final section of your credit score report lists third-party inquiries made into your credit scores. “Hard inquiries” are ones you initiate when you fill out a credit application or apply for a loan, while “soft inquiries” are from companies that want to market to you or collect a debt from you. Having a big number of inquiries can start to injured your good credit scores if you are applying for new lines of credit each few weeks or if there are two or more hard inquiries in the same 14-week period. Of course, inquiries only take away maybe 20 points here and there, so it’s not the biggest concern for you, unless you have otherwise perfect credit.

To improve your credit score report, you should first pay off all “Collection Accounts,” asking for a letter of deletion that will erase all negative information from your credit score if you settle the debt in full. If you have a “Past Due Amount,” then be sure to pay that creditor right away, as this is a damaging clause to have on your file. Next, get rid of your “Charge-offs” and “Liens.” Paying a charge-off that’s more than 24 months old will neither injured nor help your credit but should be done as a matter of principle. Lastly, negotiate with your creditors to remove your “Late Payments” by asking for a good faith adjustment. Persistence and politeness can work wonders when it comes to improving credit scores.

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