Improve Your Credit Score

How Is Your Credit Score Determined

Your credit score reflects your ability to borrow money.  The higher your score, the easier it will be to obtain a mortgage car loan, lease, credit card or other extension of credit by a lender , including banks, stores and other credit card issuers.   Your credit score is reflected by your credit report and may affect a lenders decision to grant your request to borrow money.

The Three Major Credit Reporting Bureaus

In addition to a list of a person’s lenders and their payment history, credit reports also contain other information that can be used by potential lenders determine whether to extend credit to you. Here is a list of some of the things a credit report may also include:

  • With whom you have applied for credit;
  • Your name, current address, Social Security Number and your spouse’s name;
  • The name and address of your current employer, as well as the amount of your income;
  • Information regarding lawsuits, foreclosures, repossessions, and whether you have filed for bankruptcy in the past; and,
  • Information about any tax liens that have been filed against you for unpaid federal, state or local taxes.

What is the importance of all the information included in your credit report?  Your potential lenders want to know whether you can be counted on to pay back your debts. Insurance companies also look for risk factors on your credit report.  Potential employers sometimes use your credit report to make employment decisions about job applicants.  New, potential landlords may use it to determine if you are likely to pay the rent on time.

Your potential lenders often use all of the information on your report to derive a credit score on you. A credit score is a number used to rate and rank your credit worthiness compared with the public at large.  There are a number of different credit scoring systems. One of the best known  scoring systems is the Fair Isaac Corporation (“FICO”) Credit Score. FICO scores range between 300 and 850. According to FICO, 40% of the population score at 690 or lower, while 40% score 745 or higher, with just 20% above 780.

Your potential lenders want to know if you will repay a debt once a loan is extended.  They will use the credit score to determine if and how much they will lend you, and at what interest rate. Lenders assign points to the various aspects of your credit report. Typically, potential lenders use the following top five (5) factors when making their credit decisions:

  • Debt to income ratio. Your Debt to Income ratios is the proportion of how much total debt you have relative to your income level. This is probably the single largest factor that creditors consider in determining whether or not to extend a loan or other credit to you. You should be aware of the fact that even if you have no outstanding or unpaid balance on your credit card, your credit limit is still added to the debt side of your debt-to-income ratio.
  • Payment history.  Your payment history reflects whether or not you have paid your debts on time, including real estate mortgages, automobile loans, credit cards, credit lines,  store charge accounts or other loans.
  • Length of credit history. Lenders look at the length of your credit history to see how long you have paid on your debts. Good past payment history can help sway a lender to loan you money if you’ve had recent issues that could negatively affect your ability to get the credit.
  • Number of Recent Credit Applications and Inquiries by Potential Lenders. If your credit report indicates that you have applied to a large number of other potential lenders, it could be a factor in their decision not to make a loan to you.
  • The type of credit for which you are applying.  Lenders that will retain a security interest in the asset that you want to buy (“collateral”) such as a car finance or mortgage company, may be more willing to lend money to more ‘at risk’ borrowers when the lender knows that they can always take back the collateral in the event of default on payments.

Other Factors that Lenders look at to determine who is a good credit risk are:

  • Education level.  Potential Lenders have statistically determined that the more education that you have had the better credit risk you are, so the more education you have the less you are a credit risk.
  • How long you have lived in your current place of residence.   If you have moved around frequently in the past few years, your credit score will be lower, unless have relocated in order to secure a better job and/or your income level is now higher as a result of those moves.
  • How long have you had your current job.  Potential lenders like consistency.  The longer you have had the same job or employer, the better credit risk you are considered to be.
  • Homeowner v. Renter.  If you own your own home, your Potential Lenders will consider you better risk than if you rent your home.

Overall, your Potential lenders really like to see a history of stability.  If you can show that you are a stable, reliable person and have the ability, capacity and willingness to repay your debts, your Potential Lenders will consider you a much better credit risk..

It is not uncommon for mistakes to be made on your credit report.  Consequently, you should be sure to review your credit report not less than annually. If your credit report has errors in it you can correct them by application to the credit reporting services, online.  Just go to for your free report and the ability to connect to each credit reporting agency without charge.  Importantly, you must understand that  just a few points difference in your credit score can determine whether or not you will get the additional credit that you need or want. Therefore, it’s absolutely crucial to have an accurate credit report.

And, in today’s world of “ identity theft” you must pay attention to your credit report, just like you should pay attention to your health.  Your doctors recommend an annual physical.  Gudeman and Associates’ Law Center for Debt Relief recommends not less than an annual checkup,  Failure to pay attention can, all by itself, place your credit in such jeopardy that you may have to file bankruptcy just to clear up the debt that identity thieves have caused you to incur.  Avoid the legal and financial difficulties of identity theft by frequently reviewing your credit report. It may save your years of stress, frustration, legal fees and even the ability to avoid bankruptcy.

You must report inaccuracies to the credit bureau whose report contains any inaccuracy.  It is not their responsibility to identify errors.  Once you identify an error, however, the credit bureaus must correct the information within 60 days, if actually determined to be in error and to send you a free copy of the credit report showing that the inaccuracy was corrected.

For a totally free credit report that you can get without charge go to:

For more information about Credit Scores, go to:

Gudeman & Associates, P.C. can help.

Bankruptcy may be the right solution for you to improve your Credit Scores.

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