Your credit score affects many different facets of your financial life. It is the three digit numbers that say a lot about how likely you are to pay a debt. It represents your creditworthiness. It is also your credit score that’s being used by lenders and bankers to decide whether your loan or credit card application will be approved. It determines the terms you will get when you’re looking to buy a house, apply for an auto loan or even get cable services.
When you have adequate knowledge about your credit score, it will be easier for you to figure out what to do in order to protect it or improve it. Here is basic information you need to know about your credit scores.
Why credit scores are important
The main reason why your credit score is crucial? It is an indicating factor which determines whether or not you can qualify for a credit. Most lenders and financial institutions use these figures as a reference. If your credit report doesn’t show a good credit history, chances are you won’t be extended the credit that you need.
How credit scores are created
Your credit score is determined by the three main credit bureaus based on the information being reported to them. These credit bureaus are Experian, Equifax and TransUnion. They are the ones that create your credit reports and they make use of scoring models such as FICO and VantageScore. The score they generate typically ranges from 300 to 850. These are based on the number of your accounts that are in good standing and how often you make on-time payments. Your score is never based on your personal information like gender, race, religion, etc.
What is a good credit score?
Because the value of a credit score ranges from 300 to 850, 300 signifies the lowest possible score and 850, the highest. Below are the factors used in the computation your credit score:
- Amount of debt
- Number of late payments
- Type of credit used
- Length of credit history
- Number of credit inquiries
A score of 660 to 700 may be good enough. But if you want a fairly good credit score, you should aim for 700 and above. Knowing what a good credit score means is crucial especially when you are thinking about applying for an auto loan, mortgage, or credit card. Many lenders base their decision solely on your credit score. When you know your credit score, you will be aware of where you stand with the lenders. This will also give you the chance to work on your credit score based on the items that appear on your credit history.
If your bad credit is causing you difficulties when it comes to getting loans, you need to figure out what your credit score actually is. Get your free credit report so you can take necessary steps as early as possible. Bad credit ratings are surely going to get your loan applications rejected.
Why is a credit report important?
A credit report determines what you can and what you can’t borrow. A free credit report is also useful because it can tell you if you have been a victim of identity theft and fraud. Inaccuracies like debts and credit checks that are not yours may appear on your credit report. And these are things that you need to dispute.
Because there are different methods of calculating credit scores, it is possible to have multiple credit scores at the same time. Your scores may be different if you have a lender that does not report to all three major credit bureaus. Or they may be doing the reporting at different times.
Which credit bureau should you get your credit score from?
Think it’s enough to use a credit report from one company? Actually it’s not. It’s crucial that you take a look at all three reports. This is how you can ensure that there are no anomalies on your credit score.
Knowing your credit score can help you prepare for when you want to apply for a mortgage or auto loan. Interested in getting a pre-approved car loan? Please visit The Auto Warehouse.