Reading Skills for Today's Adults

James, a 32-year-old single parent, has a good job as a manager of a retail store. He has been living in a small apartment for the past three years. He desires a bigger living space with a nice yard for his children. James wants a home to call his own. 

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James knows that home ownership means securing a loan, and a loan means credit. He often hears the words credit score and credit report on the radio and TV. He has also seen credit-related articles in newspapers, magazines, and online.

James is confused by all the credit talk. What exactly is a credit score? What does it mean? Does everyone have one? Where can you get one? 

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A credit score is a calculation based on information from your credit report. It is used to assess your credit worthiness based on your credit history and current credit amounts. The better your credit history, the higher your credit score. Creditors, especially in the mortgage industry, frequently use credit scores to determine whether or not to offer a person credit.

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Credit scores, often referred to as FICO scores, range from 375 to 900 points. If your FICO score is high, you are a better credit risk. Mortgage lenders usually look for borrowers with a credit score above 650. 

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Many factors affect a person’s credit score. The two most important factors are payment history and outstanding debt. In fact, these two factors account for 65% of a person’s credit score. James’ FICO score will be high if he has consistently paid his bills on time. That means paying at least the “minimum payment due” (although paying more is a good idea) before the due date every month. His FICO score will be high if he does not have much debt.

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Credit history and the pursuit of new credit are two other factors that affect credit scores. People who wisely use the same credit card for a long period of time are a better risk than those who open and close credit card accounts often. Opening a charge account at numerous stores in order to save 10% on a purchase is not wise; too many inquiries for new accounts can negatively affect your credit score.

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James was anxious to get his credit score. He logged on to the www.annualcreditreport.com website to retrieve his free credit report. For a fee, he can purchase his credit score directly from the credit reporting agencies.