Credit reports are  an indicator of a persons ability and likeliness to repay a loan. There are multiple considerations that go into determining a credit a score and many of them are counterintuitive and unknown to most potential borrowers. 

A few points of interest regarding credit scores:

1. Credit scores are as much about debt and repayment as they are about lack of debt and repayment.

Most people believe that having a large amount of available credit is good for your credit score when in fact this may not be the case. Having available lines credit can be very detrimental to a borrower because creditors see the ability of the borrower to quickly and easily borrow more than they are able to repay. The best possible scenerio is for a borrower to have about one third of their available credit lines in use at any one time and to payoff those lines down to between ten and twenty percent every month.  This shows the ability of the borrower to borrow only what they can repay, to repay at least what they borrowed and to be a consciencious debtor.

2. When one credit card goes bad, they all go bad.

The current trend for credit issuers is to constantly look at your credit. If you are late on one credit card, all of your other credit cards may lower your available credit lines, and in some instances cancel them completely. Taken with the debt ratio discussed above this can significantly impact your credit score. (Note: There are changes being made to the credit card laws and will take place in phases.  Phase one began on August 21, 2009). If creditors lower your available credit, as a borrower you may become viewed as high risk because you are almost maxxed out on your credit cards, when a month earlier you had availability on your credit cards. One way to quickly and easily correct an issue like this is to call your credit card issuers and ask for your line to be increased and your interest rate to be lowered. Credit card companies are willing to help you and this will help your credit rating.

3. Being a co-borrower

If you signed a loan for someone else as a co-borrower, this will appear on your credit report. The outstanding debt will reflect as though it is your responsibility to make payments on a monthly basis and in fact, it is! If the primary borrower should fail to make a timely payment, the credit issuer will look to you for payment and will report both you and the primary borrower as delinquent.  Credit agencies understand that certain obligations are more important than others. Being late on a home loan is the most damaging late possible, while a car payment is second, with unsecured debt like credit cards coming in last place. As a coborrower, your credit will not be impacted as much as the primary borrower’s, but the hit to your credit report will be significant.

4. Spread the wealth.

Every borrower should have between three and five rotating unsecured credit lines. Too many is not good and too few is just as bad.  Credit is about balance. To this end also be aware that having one or two cards with no remaining credit available and the rest of your cards not in use at all may also negatively impact your credit score. The best possible scenerio is to have each credit line with a little debt showing that you are able to make multiple payments and handle many financial responsibilies every month.

In short, make sure your credit report is as accurate as possible and challange anything and everything that you believe should not be there.  Try to pay down debt in incriments, do not make a huge lump sum payment to your credit cards but rather use them less and pay a little more to reduce the principle owed slowly over a few months until you reach about one third of your total credit line outstanding, this will significantly increase your credit score. 

As a side note, you can order your credit report as many times as you like without negatively impacting your credit, however if others run your credit multiple times your credit score will decrease. Get a recent copy of your credit report and take it with you when you decide to seek financing and do not authorize any lender to run your credit report until you have decided on the loan you want to take. After that point if a lender runs your credit to verify your scores it will not damage your scores. If you allow every lender you meet with to run your credit report it could cost you a hundred points.