Credit reports, credit scores and credit card offers: how they work

While the average consumer will understand that good credit is "good" and bad credit is "bad," and that improving their credit score will give them more financial options in the credit world, including those attractive online credit card offers (you know, those ones with the higher limit, low rate, cash back, rewards, no annual fee, instant approval, etc.), most don't understand how the credit report and credit score system works.

For example, how is your credit score calculated and who keeps track of it? If you can understand how credit reports and credit scores work, then you can learn how to make them work for you, so you can not only improve your credit score, but also take advantage of the offers that you'll qualify for as a customer with good credit, including the best credit card offers online.

First of all, you need to learn what a credit report and a credit score is. Your credit score is a three-digit rating based on how much debt you have, what kinds of credit you use, such as a credit card, and your demonstrated ability (or inability) to pay your bills in full and on time. Your credit report, on the other hand, is a written-up record of your entire credit history, based on financial (not personal) information collected and reported through databases by lenders, creditors, and landlords.

From where does the credit report come? Various parties (such as creditors and landlords) that you have been financially involved with file reports on your payment history with credit reporting agencies, which then gets forwarded to a national credit bureau: either Equifax, TransUnion, or Experian. These are the three companies responsible for compiling your credit report, which includes your credit score.

How is your credit score calculated? It's based on a number of variables, and the most important being how much debt you have and your credit-related payment history. Other factors include how long your credit history is, the kinds of credit you use (such as a Visa, MasterCard, Discover, or American Express credit card), and your most recent credit activity (for example, if you recently maxed out your credit card or decided to apply online for more than one new credit card offer at the same time, this will be negatively reflected on your credit report, thus lowering your credit score).

But what good is your credit score? Whether you qualify for anything where credit is required is based on your credit score, credit rating, and credit standing. Want to take advantage of the top credit card offers and the best credit cards online from the finest credit card companies? That depends on whether you have good credit or bad credit-which is measured by your credit score.

A great credit card offer-whether it's an online credit card offer or not-could include the ability to apply online, instant approval, no annual fee, rewards (like airmiles), or cash back, but those with a higher credit score will probably qualify for a credit card offer with a low rate interest-wise, and possibly a higher limit.

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