We all know we should check our credit scores at least once a year just like we should go to the dentist regularly. But for some of us, even the thought of checking our credit scores and reading our credit reports brings on a stomachache. Ignoring your credit score can have a vast and lasting impact on your life. Don’t wait until it is too late, and you are refused credit to buy your dream house or given a high rate to consolidate your student loans. Buck up, grit your teeth, and put yourself on a regular schedule for checking your credit scores and examining your credit reports. Knowledge is power, and if your credit score turns out not to be all you had hoped, you can take measures to boost it. In addition to checking your score, you will also want to check your credit report for errors, identity theft, information that should have been deleted and is hurting your credit score, and trends in your spending that could benefit from examination.
Track Reports from the Big Three Credit Agencies
Your credit reports from the three major credit agencies (TransUnion, Equifax and Experian) will not be exactly the same, but they should be fairly close. Under the Fair Credit Reporting Act (FCRA), you are entitled to a free credit report from each one every year. Scores will vary a little bit, so you should track all three. Also, if there is an error, it may not show up on each report. So, if there is an error on your Equifax credit report, for example, it may not show up on your Transunion credit report.
What Is a Good Credit Score?
Lenders use credit scores to determine how much of a risk you are, and how likely you are to repay them. A FICO score, so called because it was created by the Fair Isaac Corporation, is the most commonly used credit score. VantageScore is another type of credit score, and it was developed by the big three credit agencies. However, it’s used less often.
Credit scores are not the only criteria lenders use. They also look at factors that speak to your economic stability such as how long you have lived at a location, your income and how long you have been at your job. But let’s face it, credit scores carry a lot of weight. FICO scores start at 300 and go up to 850, and the higher the score, the better it is.
Experian explains what is a good and a bad credit score:
- 800 and above is exceptional and should get you approved for anything. Fewer than 1% of people with this score range become seriously delinquent, meaning 90 or more days past due within 24 months.
- 740 to 799 is very good and above average. You will get better interest rates than most people if you have a score in this range.
- 670 to 739 is considered a good score. It’s the median credit score range. :
- 580 to 679 is fair, but a score in this range makes you a subprime borrower. You will likely have to pay high interest rates.
- 579 and below is poor and may cause you to be rejected even for credit cards. : Utilities may ask you for a deposit.
How Your FICO Score is Calculated
You FICO credit score is determined by five categories, but it is factored differently according to your situation, such as a long or a short credit history. Generally, the importance of the five categories is as follows:
- 35%: Payment history
- 30%: Amounts owed
- 15%: Length of credit history
- 10%: Recent credit activity
- 10%: Credit mix
How to Access Your Credit Reports and Credit Scores
There are various ways you can obtain your credit score and credit report.
- The big three agency websites: You can get a copy of your credit reports from Transunion, Experian and Equifax by simply going to their websites. But you can do more. You can monitor your credit, so if someone has stolen your identity you will know it, as well as all the effects of your economic actions. You can also lock your report if you do not want it to be accessed and use various other services. Only a yearly credit report is free, and credit agencies charge a fee for other services.
- Annualreportcom: To get all your reports in one place, you can go to http://annualcreditreport.com. You will need to verify your identity.
- Credit card service or bank: You may not need to look any further afield than your credit card provider or your bank to learn your credit scores.
- Credit score services: You may see advertisements for credit score services, but unlike Transunion, Equifax and Experian, these companies will charge you for copies of your credit reports. For most people, this would not be the first choice.
Just Do It
Every adult should know what their credit score is, and what that score means in terms of their power to finance major purchases or get other types of loans. At least once a year, get a free copy of your credit report from the three big credit agencies. If you are planning to buy a home or make another major purchase in the near future, you may also want to sign up for a monitoring service with at least one of the agencies.