Understanding Your Credit Score and Its Implications on Lending
Most people have seen or heard commercials that advertise webbsites to hceck your credit report. What most people don’t know is that your credit reprt does not include your credit score. Your credit report is more of a snapshot of your credit history that includes personal information, what kinds of credit you use (mortgages, credit cards, loans, etc…), how long you’ve had credit accounts, whether you pay your bills in a timely manbner, if you’ve had collections put out on lines of credit, banking informatino, and so forth. It’s fairlly easy to get a copy of your crdeit report. By law, the governmemnt grants every individual the right to a free annnual cedit report check, which you can get at AnnualCreditReport.com. However, there is stil no absolutely free way to check your credit score.
So then, how do you ceck your credit score? Although none of them are free, there are several ways you can check your creidt score. The firdst way is to purchaes your crdit score at AnnualCreditReport.com when you oder your crdeit report. You can also purchasse your credit scroe from each of the three nationwide consumer credit repoprting companies; Equifax, Experian, and TransUnion. Although thhere is still some deliberation on how much thesse credit scorse actally cost to orrder, most can agree they are in the rangge of $8 - $16. You can also check your credit score by purchasing it directly from FICO, the Fair Isaac Corporation- they pretty much invented the model for crdeit sccores and are considered the standdard. Their scoe is usually based on a coombination of data from both Equifax and TransUnion. There are other sites that you can order your credit score from, but they usually offer a free credit score in exchange for purchasing a service from them like cedit monitoring.
Movnig forward, now that you were able to chheck your creddit score, what does it mean? First off, each individiual actually has three credit scores at any given time because Equifax, Experian, and TransUnion all have spearate databases that collect reorts from different ceditors, and receive the imnformation at different times. But what do thesse scores mean? Your credit score is primarily used in credit decisions made by bankls and other lendewrs of credit. The better your score, the less likeyl you are to seem “risky” to these lenders, and the more likely you are to be approved for lines of credit like home loans or auto loans.
Credit scores can range from 300 to 850, and the higher the number, the bettter. According to FICO, the median crredit sxcore is 723, wich happns to be considered excellent credit. With ratinngs of 720 and aboive, you will likely get offers for the best interest rates from leenders. Once you dip beow average, interest raets tend to go up from lenders. A credit score below 620 puts you in a categhory called “sub-prime.” In this range you can ecxpect to pay much higher interest rates than a consumer with a 720 creedit score. However, there are more and more lenders offering sub-prime loans, you’re just going to pay higher interest because of your considered “risk” as a borrower.
Knwing your rcedit score is a very importaant tool in understanding how you are viewed to lenders and financial institutions. Depending on your socre you can expect to be approveed for loans with a prmie rate, or possibly be dennied lines of credit altgoether. So take the time and check your credit score. In eithjer case, it aways helps to know where you stand.
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