Few people know the importance of their credit score, after all, how significant can a seemingly random number be? Believe it or not, this one number plays a major role in your financial life, and monitoring it can help you to become more financially fit. Before learning its value, however, you should know exactly what a credit score is and what factors can affect it.
What Is A Credit Score?
A credit score is a number that represents your credit status. Think of your credit score as your borrowing reputation – it gives lenders an impression of how you act as a borrower. In short, your credit score is a numerical description of your history as a borrower to determine how creditworthy you are. Credit bureaus take your historical financial information and aggregate it in order to determine how suitable you are to receive credit. Financial institutions then use this number to determine whether or not they should lend to you, and what interest rate they’ll charge.
Why Is It Important?
Since your credit score reflects your financial history, it gives lenders an idea of how likely you are to pay them back. This becomes important when you apply for a loan or mortgage, a credit card, or even a job. Someone with a high credit score can be offered lower rates, while people with lower scores are often charged a higher interest rate. In some instances, a significantly low credit score can cause you to be denied a loan altogether. For this reason, it’s important that your score is both correct and as high as possible.
How Is A Credit Score Calculated?
Several factors go into calculating your credit score. The first, and arguably the most important, factor is your payment history. Financial institutions and lenders want to know that you’ll pay them back, and having a consistent payment history is a good indication that you will continue to pay your bills and loans on time in the future. Similarly, the length of your credit history can be scrutinized, too. The longer you’ve had established credit, the more accurate your score will be in representing your payment habits. Another factor is your debt level. The more debt you have, the more payments you have, and the more likely you are to default.
How Does A Credit Score Differ From A Credit Report?
Your credit score is simply a number that estimates your creditworthiness. Your credit report contains your credit score, but it also includes much more detailed personal information. In addition to containing financial information such as how much debt you have and who you owe, it can include things such as your residential and criminal history. If you’ve been arrested it will also be in your credit report. In general, any sort of information available in a public record could end up in your credit report.
Can I Get Hold of My Credit Report?
Yes, you can! If you live in the United States, each of the major credit bureaus are required by law to provide you with a copy of your credit report for free annually. Visit www.annualcreditreport.com to request a copy. If you want to see your credit score then you usually have to pay for it or you can use Credit Karma. Credit Karma offers free credit scores and advice. There are also many sites like www.freescore.com/credit-
What Should I Check for In My Report/Score?
First and foremost, you want to check that the information contained in your credit report is accurate, making sure all personal information is correct and up to date. If not, contact the credit bureau immediately, in writing, to get this fixed. Next, check for any late or delinquent accounts. If there are any, you’ll want to attend to them as soon as possible. Additionally, while your credit report can contain a lot of information, it should only go back about 7 years. Anything included that’s older shouldn’t be on your credit report.
Can I Improve My Credit Score? How?
If your credit score is high, congratulations! Continue with good financial habits to maintain this. For those with lower scores, though, there are ways to improve it. To obtain a good score, it’s important that all accounts be in good standing. Close any accounts that are old and not being used. Identify any outstanding loans or accounts on your credit report and deal with these first. Furthermore, make sure to pay all your bills on time, and always pay at least the minimum payment amount. Ideally, you should pay off your balance in full each month.
While understanding your credit score can seem daunting, it’s actually a very valuable tool for knowing where you stand in the lending world. By frequently monitoring your credit report and ensuring that your credit score is accurate, you can maintain a good financial reputation.
This article was written by William from Home Loan Finder. Visit Home Loan Finder to find the right low doc home loan or mortgage brokers.
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