The word credit comes from the Latin word credere, which means to believe. Basically, a lending institution or retail establishment's extension of credit or a loan expresses its willingness to believe in your ability and commitment to repay the debt that you are incurring. Throughout the history of money lending, the determinations regarding an individual's creditworthiness have been made solely on a lender's personal assessment of the situation and statements and documentation tendered by the prospective borrower. Understandably, this was more art than science, leading to the creation of credit scores in the 20th century.
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Your credit score is a statistically modeled evaluation of the perceived risk in allowing you to borrow money, and it is primarily the innovation of the Fair Isaac Corporation, whose FICO score is still the industry standard. Though it is certainly imperfect, credit scores are so broadly utilized that you have no choice but to monitor your credit score and to take action to ensure that it is based on accurate information and that it is as high as you can manage to maintain it. Banks and companies use your credit score to determine your eligibility for loans or purchases and also to choose which interest rate will be attached to your agreement.
Steps to Improve Your Credit Score
Financial education is still largely absent from the early phases of one's life, and unscrupulous credit card companies in particular are eager to take advantage of young consumers when they reach college or young adulthood. Unfortunately, this creates a situation in which they have a huge advantage over the borrowers and an incentive to abuse their lack of understanding about how to manage and use credit effectively. This puts many people behind the credit curve as they are first entering the world of independent living, and it can be a hard obstacle to overcome.
If you find that you are encountering difficulty in your effort to obtain new credit accounts or to qualify for desirable lending options, then it is in your best interest to take proactive steps to correct that deficiency. Doing so may cost some money now, but it will save much more in the long run. Some steps to improve your credit score include:
Maintain an active awareness of your current credit report and credit score Scour your credit report and challenge any fraudulent entries Attempt to pay down credit card debt quickly Avoid using revolving credit accounts (like credit cards) as much as you possibly can Use your older credit cards more often than your newer ones
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