5 Things To Know About Your Credit


When it comes to making big purchases like buying a home or financing a business, knowing and understanding your credit is very important especially if a certain credit score is required or if you intend to use loans towards your purchase or financing e.g. a mortgage or business loan.

"Your creditworthiness is used to determine your interest rate on loans and also your eligibility for pay to use services."

Your creditworthiness is used to determine your eligibility for "pay to use" services like your contract cell phone or your apartment rental and is also used to determine your interest rate on your credit cards and loans. Some employers may also use your credit report as a determining factor when considering you for a job.

Below are 5 things we should all know and be aware of regarding our credit scores!

1. Credit history, credit reports and credit scores

Before understanding what a credit score is, you need to know what credit history is and what a credit report is because these two items help determine your credit score.

  • Credit history is basically the history of how (well) you've paid your bills in the past.
  • A credit report is documentation of your credit history over time based on information from various sources e.g. credit card companies, banks, collection agencies etc.
  • Your credit score is a grading given to you by the credit bureaus based on your credit history from your credit report and is used to help lenders determine or predict how well you will pay your bills in future.

In the US there are 3 major credit bureaus - EquifaxTransunion and Experian (Credit bureaus also exist all around the world). Their main job is to collect your credit information from various sources, aggregate them into a report, assign you a credit score and make this information available to your potential lenders.

2. What your credit score is

What is your credit score? When was the last time you checked your credit? Is everything on your credit report documented accurately? Are all your bills being paid on time? Are you aware of any delinquencies?

You should be able to answer all of these questions about your credit at any point in time. This way you have a good idea about your credit status before you apply for any loans.

Knowing your credit score and what is in your credit history will also make you aware of credit fraud or identity theft and this is very important to catch early. Because if you catch it when its too late and your credit has already been damaged, it can be a royal pain in the butt to fix.

3. What a good credit score is

The general consensus is that a good credit score is 720 or higher. This means that if your credit score is around or higher than 720, you'll more than likely be approved for a loan at the best possible interest rate. So ideally your goal should be to get to as close to 720 as possible or much better.

4. How to improve your credit score

In order to improve your credit score you need to make sure you know what is currently  on your credit, pay all your bills and loans on time and reduce your overall debt to credit ratio  by paying down debt i.e. regardless of your credit card limits, you want to keep your credit card limits to the minimum and pay them off each month.

5. You can get your credit report for free

A lot of people are not aware of this but in the US you are actually entitled to a free credit report from each of the three bureaus once a year via annualcreditreport.com.


CreditKarma.com is another great free resource for those of you in the US. It provides free weekly updated credit scores and credit reports from the 3 major credit bureaus as well as daily credit monitoring.

Remember, you should use credit wisely and to your advantage e.g. for a home loan, getting a cell phone, renting your apartment, business financing (with a solid business plan) and not to rack up credit card debt which over the long term, is to your disadvantage.