Understanding Your Credit Score - Video

A credit score is an important piece of information that is used by countless institutions to determine your "validity" as an investment risk. What exactly is your credit score though and how do you know if it's good? The basics of understanding your credit score aren't difficult and can give you a good head start to establishing stellar credit.

Your credit score number (called your FICO number) has no significance unless you understand what's good and what's bad. Once you understand a bit more about what the numbers mean, then you can start taking action to either build it up or to maintain it.

Basically, a high credit score is good and gets you low interest rates; low credit scores are not so good and result in higher interest rates and can even lead to rejection from housing contracts, loans, and sometimes jobs.

The scoring ranges from 300 to 850 and you always want to aim for the higher score. Your baseline should be 720; any lower than that and you could get into trouble. At 720 you're viewed as a safe risk for a lender or any other financial institution. Your score will probably fluctuate from year to year and that's okay as long as you keep it in the same general area of the spectrum.

The basics of the credit score are simple to understand but the trick is getting that score to stay high. It all comes down to wise money management: pay your bills on time, always pay the minimum amount on your bills, stay on top of your credit report and remedy any errors, and work on lowering your debt. Try to never spend more money than you have; that can only lead to debt and financial stress.

Your credit score is more than just a number and it's important to know where you can go and what you can maintain. Once you understand your credit score you can better evaluate your financial standing and figure out what you need to do to either raise it or maintain it. You can have a better idea of what reactions you may get from lenders or others looking into your credit report and you can even better take charge of your financial standing.

For a longer tip related to this subject, see Understanding Your Credit Score