Before we can answer the question, "What is a credit score?" and work toward learning how to improve credit scores, we must first define a few credit terms and understand their meanings from a creditor’s perspective. Credit is defined as the provision of money, goods, or services with the expectation of future payment and is something that every consumer needs to develop. When we say that an individual has good or bad credit, we are referring to an evaluation of their credit history, which is their payment performance over time.

Credit Reports

A credit report is a snapshot in time of a consumer’s credit history. When a creditor reviews a borrower’s credit report, they are trying to evaluate the willingness of that individual to repay a debt based on their payment history of established debts. Consumers who learn how to check credit history and obtain their credit reports on a regular basis will have the opportunity to make the necessary corrections and adjustments to increase their credit scores.

That being said, what is a credit score? A credit score is a numerical grade of your credit performance and profile. Your credit information is analyzed by a computer, and your credit profile is summed up into just one number to be used by creditors for qualification purposes and risk analysis. Creditors may evaluate you on your credit score alone. Learning how to improve credit scores is an important undertaking that every consumer should take seriously.

Perfect Credit But A Mediocre Score?

It is possible to have perfect credit but still have a mediocre credit score. How can that be? The credit score takes into account the way a consumer utilizes credit in addition to the payment history. If you don’t understand how your credit is being evaluated, then you may be sabotaging your credit score and not even know it! So even if your credit is perfect, you can improve your credit score by managing your accounts in an optimum manner.

So now that we've identified a few key credit terms and understand the need to learn ways to improve credit scores, what should a consumer do next? You will first need to obtain a recent copy of your credit report. I recommend that you obtain a credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion), which are available for free.

It will also be beneficial for you to obtain your credit scores from each credit bureau, which may be available for a fee. Since potential lenders will be making credit decisions based on your credit scores, it is better to know up front how you are ranked. Once you have this information, you will have a baseline of your current credit profile and will be ready to find and implement ways to improve credit scores if necessary. Please keep in mind that credit improvement can take time and does not happen overnight. However, your diligence and dedication may pay off when you are ready to purchase that big ticket item.