The 411 on Credit Scores
You’ve probably seen all those hackneyed commercials about improving your credit score; yet, you’ve probably seen them so many times that the meaning has been lost.
So what is credit score, and why is it important?
In simple terms, a credit score is a calculated three digit number that can affect whether or not you are approved for a mortgage, loan, or credit card and how much interest you will be charged. In order to be approved for certain loans or credit cards, companies and financial institutions will evaluate your creditworthiness. Creditworthiness is determined by how likely you are to repay your loans and debts.
Therefore, it is crucial that you know your credit score before applying for credit. If you are in need of a credit report, visit www.AnnualCreditReport.com for more information. This website is run through Equifax, Experian, and TransUnion. Under the Fair Credit Reporting Act (FCRA), these three providers provide you with an annual credit report per your request. These reports are used to determine your creditworthiness, or the likelihood that you will pay your bills. While the report is free, you will likely have to pay for your scores.
Credit scores range from 300-850. The higher the score, the better your credit is.
How good or bad your credit is will determine your interest rate. The better your credit is, the lower your interest rate will be. Improving credit is possible, but it is not an overnight fix.
The best way to improve credit is to pay your bills on time. Even a single skipped payment can drastically decrease your credit score. Paying your bills on time over an extended period will prove to lenders that you have improved your creditworthiness.
Additionally, you should monitor your credit score reports. Errors are not necessarily infrequent, so making sure your report is accurate is essential. Once these issues are settled, your credit score should be readjusted to accurately reflect your credit.
New credit will also have a great effect on your credit score-up to ten percent of your credit score. Therefore, be cautious. The kind of credit you have, along with your age or how long you have had credit, can make up a third of your credit score. The other two-thirds are determined from how often you pay your bills.
If you ever want a loan or a mortgage, knowing your credit score is necessary. Make sure you know your credit score before you apply for credit, and only apply for credit when necessary. If you aren’t satisfied with your credit score, don’t panic.
You can always improve your credit through consistent payments, but don’t expect your credit concerns to disappear overnight.