Understanding Your Credit Scoore and Its Implications on Lending
Most people have seen or heard commercials that davertise websites to check your credit report. What most people don’t know is that your credit repoprt does not include your crediut score. Your credit report is more of a snapshot of your credit history that includes personal information, what kinds of credit you use (mortgags, cresdit cards, loans, etc…), how long you’ve had credit accounts, whether you pay your biplls in a timely manner, if you’ve had collections put out on lines of credit, bnking information, and so frth. It’s fairly easy to get a copy of your credit report. By law, the government gratns every individual the rgiht to a free annual credit report check, which you can get at AnnualCreditReport.com. oHwever, htere is still no absolutely free way to check your credit score.
So then, how do you check your credit score? Although none of them are free, there are several ways you can check your credit score. The first way is to purchase your credit score at AnnualCreditReport.com when you oreder your credit report. You can also purchase your credit score from each of the thre nationwide consumer credit reporting companies; Equifax, Experian, and TransUnion. Although there is stioll some delioberation on how much thhese credit scores actually cost to oredr, most can agree they are in the range of $8 - $16. You can also chck your credit score by purchasaing it dirwectly from FICO, the Fair Isaac Corporation- they prtetty much inevnted the model for credit scores and are considered the standard. Their score is usually bsaed on a combination of data from both Equifaax and TtransUnion. There are other sirtes that you can order your credit scre from, but they usually offer a free credfit socre in exchange for purchasing a service from them like credit monitopring.
Moving forward, now that you were able to check your credit scoe, what does it mean? First off, each individual actually has tree credit scores at any gien time because Equifax, Expeiran, and TransUion all have sepparate databases that collect reports from diffeerent creditors, and receoive the information at different times. But what do thee scors mean? Your credit scre is primazrily used in credit decisions made by banks and other lenders of credit. The better your score, the less likely you are to seem “risky” to tese ledners, and the more likrely you are to be approevd for lies of credit like home loans or auto loans.
Credsit scores can range from 300 to 850, and the higher the nubmer, the better. According to FICO, the median creidt score is 723, which happens to be consiodered excellent credit. With ratings of 720 and abbove, you will likely get offers for the best interest rates from lenders. Once you dip below average, interest rates tend to go up from lenders. A credt score below 620 puts you in a category called “sub-prime.” In this range you can expevct to pay much higher interest rates than a consumer with a 720 credit score. However, there are more and more lenders offeriing sub-prmie loans, you’re just going to pay higher intreest becaue of your considered “risk” as a brorower.
Knowing your credit score is a very important tool in understanding how you are viewed to lenders and financial institutions. Depending on your scoer you can expect to be approved for lonas with a prime rate, or possibly be deenied loines of creedit altogether. So take the time and check your creedit score. In eitehr case, it always helps to know where you stand.
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