The main things people want to know about the credit score scale is, firstly, what factors determine your score, and secondly, how to read and understand a credit report.

The diagram to the right shows the factors taken into consideration when determining a credit score, and how these factors are weighted.

What do the scores mean? Although three different organizations issue credit reports, they all refer to a credit score scale known as the FICO (Fair Isaac Co.) rating, which classifies an individual’s credit ‘risk’ using a score of between 300 and 850. Here is the scale and what the scores mean:

700 and above: Excellent / Very Good Credit. You are considered a low credit risk by institutions and would generally qualify for the lowest interest rates and repayment terms.

680 -699: Good Credit. You will usually be approved for loans with favorable terms.

620-679: Reasonable Credit. You are a moderate credit risk, and while you won’t usually be refused credit, you will not be able to borrow at the best rates.

550-680: Poor credit. You may have to shop around to find a lender willing to approve an application for you, and your loans will be quite expensive.

below 550: Very bad credit. You are considered a high risk customer and will have difficulty finding lenders. You will have to look seriously at some strategy of ‘credit repair’.

According to FICO, the average American citizen has a credit score of about 723, which is very good. Bear in mind, however, that the average credit score of the age bracket (20-30yr olds) of those looking to finance cars and mortgages could be considerably lower.

What about reading a report? A lot of advertisements have been popping up lately for ways that you can retrieve a free credit report. Now that you finally have one in your hand, you stare at it with a blank expression. Things shouldn’t be so confusing, right? For the United States there are three major credit-reporting agencies: Experian, TransUnion and Equifax. It’s been said that looking at only one credit report from any of the three is useless. You need to look at your credit report from all three.

When looking at your report, you will see that it’s basically divided into four sections: identifying information, credit history, public records and inquiries. Of course the identifying information is exactly what it sounds like: information to identify who you are. Make sure to take a close look so that you can assess whether everything it says is accurate.

The next section is your credit history. Individual accounts are sometimes called trade lines. In this section you should see the creditor name, and the account number. The account number may seem scrambled but don’t worry, this is done for security purposes. You should also see in this section: when account was opened, type of credit, co-signers, total amount of loan, amount still owed, monthly payment amounts, status of account and history of how well you’ve stayed on top of the account.

The next section is a public records section that is best if you receive yours blank. This is where your financial record starts telling a real story about any “issues” you may have had. For example: bankruptcies, judgments and any tax liens. These are the things that can destroy your credit faster than late payments.

Finally the inquiry section is a very detailed list of any one who has ever asked to look at your report. This is divided into two sections – Hard & Soft. Hard inquiries are ones you initiate by filling out a credit application. Soft inquiries are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account.

If you feel that your credit report is wrong or displaying some weird discrepancies, you will need to fill out the form that should have came with your report. Just know that this process takes time because creditors have 30 days to respond to a charge of a discrepancy. As long as a charge is in dispute, that dispute will show up on your report. It’s common for reports to have errors, and in fact it’s been estimated that as many as 80 percent of all credit reports contain some kind of misinformation.