Bankruptcy Blog

13 November 2013

What does my credit rating mean and how do I keep track of it?


A credit rating or credit score is a number assigned to individuals that assesses how well a person manages his or her money.  A credit score is a calculation of how much debt a person has in relation to his or her available credit, type of credit available to that person, the person’s payment history, and the length of time a person has had a credit history.  A higher credit score gives lenders confidence about a person’s ability to manage money, while a lower score gives lenders concern about a person’s ability to manage money. 
 
Lenders check credit reports to how well a person has managed their money over time.  A credit report includes details about payment history and credit availability to support the credit score. 
 
The total balance of the amount owed on credit accounts should not exceed 30 percent of the available credit you have in order to keep an excellent credit score .  Closing credit accounts can be dangerous to your credit score as it lowers the ratio of debt to available credit and can lower your credit score as a result. 
 
Credit should be applied for in a prudent manner.  Credit score agencies do not penalize you for shopping for auto or mortgage rates in a short period of time, but lots of other types of inquiries on your credit history is a red flag and can lower your credit score. 
 
Credit history is built upon at least six months of credit and payment history.  If borrowing money is in your future, it is best to start small with a credit card used to purchase gas and groceries.  These balances should be paid in full or almost in full on time every month to establish a good credit history. 
 
You can check your credit score for free once each year through one of the credit agencies like Equifax, Experian, TransUnion.  It is important to make sure that your credit history is accurate and does not have errors before you apply for additional credit.
 

Steven H. Phelps  

Steven H. Phelps

Mr. Phelps was admitted to the Texas State Bar in 1992. His early litigation practice was concentrated in the areas of business law, banking and financial services, real estate and labor law. Since 1995, Mr. Phelps enlarged his practice to include the areas of estate planning and title services and most importantly, personal bankruptcy.

Call Steven today to talk about your individual situation during a free consultation.

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