Published: October 06, 2014




Your credit report is one of the most important indicators of your financial well-being. In today's world, the significance of your credit report is hard to overstate. It can make all the difference in the world.

Want to buy a new house? You need good credit. The very first thing that the lender will check is your credit report. Your income comes second.

Don't want to buy a house? You need a good credit report. The chances are that the very second thing after your income that your prospective landlord will want to check is your credit report.

Want a better job? You need a good credit report. The chances are that your potential employer will want to check your credit file. I have no idea in which order, but it's very likely to happen.

The thing with credit reports, however, is that they are not static. They change all the time.

Your credit score can slip from excellent to good in a matter of days. Then it might go up as seamlessly. There is nothing to worry about when your credit score fluctuates within 20-30 points.

Then again--it can plunge from the heights of excellent into the darkness of fair in a matter of days. What do you need to do to deserve that? Not much, just forget to pay your credit card bill for a month or two--and your score might lose 50-70 points in a day! Forget to pay two credit cards or more, and you might be facing a free fall, measured in three-digit numbers.

If you have read this column before, you already know, there is not one credit score but dozens of them. In addition, every bank and financial institution has their own proprietary system of calculating your credit-worthiness. So, please understand that when we talk about credit score, we are always dealing with approximations. For a very general (I should say generic) credit report, you can follow this set of numbers.

Excellent Credit: 750 and up;
Good Credit: 660-749;
Fair Credit: 620-659;
Poor Credit: below 620.


Now, please do not let the word fair deceive you. You will not get a fair mortgage or loan terms with fair credit. It's a misnomer. See that magic number 750? That's your goal. Because it doesn't usually matter whether your score is 750, 775, or 840. You will still get the best terms from the lenders as long as you find yourself in this exclusive group.

What affects your credit report?

There are five factors:

• Payment History--35%
• Amounts Owed--30%
• Length of Credit History--15%
• New Credit--10%
• Types of Credit Used--10%

What does it all mean?

• Payment History: Are you paying your bills on time?
• Amounts Owed: Are you close to the end of your credit line? Bad idea!
• Length of Credit History: How long has you account been opened? Hint: it is not what you might think.
• New Credit: How many new accounts do you open and how frequently?
• Types of Credit Used: FICO loves it when you have a diversified credit file, that would consist of both revolving and installment types of credit; credit cards, mortgages, car loans, etc.

To be continued

This is a post by Andy Shuman, a credit and travel expert who blogs at www.Lazytravelers.net. He writes and blogs during and between trips that he enjoys free of charge mostly due to creative use of credit card offers. He believes that credit cards are much more than just a convenient way to pay for a purchase, and that the benefits of responsible credit habits can go far beyond getting the best rates for loans and mortgages.

Andy is the author of bestselling books from Lazy Traveler Handbook Series available on Amazon. When he's not traveling, he lives with his beautiful wife and daughter in Brooklyn, NY.

Questions? Suggestions? Keep them coming!