A Brief Credit Overview
If you have ever tried to buy a house, get a new car, or take out a student loan, your credit score has almost undoubtedly come into play. Simply put, your credit score is a calculation that looks at a number of different factors that make up your credit history, with the ultimate goal of determining your creditworthiness. In other words, if someone were to give you a loan, what are the odds that you would be able to pay it back, on time, according to the terms of the agreement? Obviously, your score can play a very important role in determining some major life milestones, so it is important that all adults have a basic understanding of how it works. This article will cover some key baseline information to get you a solid grounding in credit score fundamentals.
Who calculates my credit score?
There are three primary credit bureaus in the U.S.: TransUnion, Equifax, and Experian. These bureaus each produce a credit report for you (based on your personal financial history), which are then turned into actual credit scores by FICO (formerly Fair Isaac Corporation, hence the acronym). FICO is undoubtedly the central point of credit scores in America, and FICO claims that 9 out of 10 American financial institutions will use FICO information to help determine the creditworthiness of individuals. FICO gives people credit scores somewhere between 300 and 850; although different experts and websites will tell you different things, the majority tend to agree that a score of 720 and above is considered to be very strong score. More and more companies (such as Scorelogix) are getting into the credit score game, offering lenders additional information to supplement FICO in predicting a candidate’s creditworthiness.
Do I really need to care about my credit score?
Some folks might say, ‘I don’t intend to ever buy a house, I’ll never finance a car, and I am not interested in taking out a student or business loan. Why should I care about my credit score?’ Well, very few people can accurately predict how their lives will end up, and it always takes time and responsible living to building up that score. You don’t want to find yourself suddenly in need of a loan only to realize you have a very low credit score. Even if you do manage to get approved, your credit score will influence the interest rate and other terms of your loan. Even more, a low credit score might influence a landlord to deny you an apartment lease, and many employers consider your credit score in the job application process (something to remember especially for anyone looking in the financial sector).
How and where to find your credit score? What does it cost?
By now, you’re hopefully thoroughly convinced that a solid credit score is very important. But, how do you get your score, and how much will it cost? There are certainly many different options out there to help you understand how the average lender will view your creditworthiness, but there are a few common choices that are especially reliable and economical. A cheap and reliable way to keep an eye on your credit score is to request your report from each of the ‘Big 3’ bureaus (Experian, Equifax, and TransUnion) or at AnnualCreditReport.com or by calling 1-877-322-8228. For those with a greater desire to have constant information from all three bureaus (and are willing to pay for it), you can go to MyFico.com and pay about $20/month to have them monitor your credit reports.
How can I control my credit score?
Whether you’ve got a great score or are in need of improvement, you should take some measures to make sure you are building and/or maintaining your credit score. Most important, without a doubt, is to stay on top of your bills every month. You also don’t want to carry too much total debt across all of your accounts, and you should also try to stay well away from maxing out a credit card. Be careful of scammers and identity theft, and remember that most people generally don’t need several credit cards. Ultimately, plan ahead and live within your means, and you should be alright. Interestingly enough, your income does not actually affect your credit report coming from the Big Three bureaus.
A simple search online for credit score will yield an overwhelming amount of information, but in the end, understanding how credit affects your life does not have to be a stressful experience. If you don’t know your score, go get your credit scores as soon as possible. If you’re unhappy with your score, there are plenty of ways to improve your score.