How to Read a Free Annual Credit Report from the Government

The Fair Credit Reporting Act (FCRA) entitles citizens of the United States access to a free annual credit report from the government.  It is important to understand how credit scores work and their importance to you.  The number on a credit score tells a potential lender how reliable you are to pay on the loan and not to default.  The higher the number is, the better the score. Rather than thumbing through your entire credit report, lenders have access to a score that is calculated from the payment history of your past loans.  The complicated formula, based on the loan amount and if there were any delinquent or missed payments, is converted to a number that can tell how good of a risk you are.
Credit scores range between 350 to 850, with the most borrowing options for consumers ranging between 700 to 800.  A poor score may prevent you from purchasing major items such as a car on credit or obtaining a mortgage at a good interest rate.  You should carefully review your free annual credit report from the government to be sure there are no errors and that it is current and accurate.  To do this, knowing how credit scores are calculated will be a major advantage.
Credit scores are calculated by your payment history, amounts you owe, length of your credit history, types of credit used, and new credit. The software created by Fair Isaac Corporation is called FICO. The FICO score looks at the number of accounts paid as agreed, negative collections, and delinquent payments.  The FICO looks at how much you owe on accounts, types of accounts (credit lines, credit cards, and revolving credit), installment loans such as a car that shows a steady decrease in outstanding balance, and how many zero balance accounts you have.
Your free annual credit report from the government is an important document to keep track of and to understand since your credit score is based on the history of your credit contained therein.  By understanding the way that credit scores are calculated, you can make adjustments to your spending style and improve your credit score.  So when that major purchase such as a house or car needs to be done, you can have a great credit score to enable you to achieve your dream.  You are entitled to one free credit report every year according to federal law.