Explain your credit score and why it matters
Credit scores and credit reports can be confusing, but if you ever want to take out a home or car loan, you need to understand what they are and why they are important. We take a look at what you need to know about your credit score and your report.
What are credit scores and credit reports?
A FICO credit score is a number that ranges from 300 to 850 and is used to indicate your creditworthiness. Lenders view your score as an indication of your ability to repay your debts.
Knowing both your credit score and what’s on your credit report is essential because without your report you don’t know what factors have influenced your score. Your report will provide insight into what you are doing right and areas where you can change your behavior to increase your score.
Factors Affecting Your Credit Score
Your credit score is determined by many different factors:
- The type of credit you have. For example, student loans, car loans and your mortgage, as well as store credit cards.
- Use of credit. It is the amount of credit that you actually use. Using too much of your available credit will lower your score.
- History of late payments. Late payments have the most negative impact on your score in the first two years, but they will stay on your report for seven years.
- An FTC study found that one in five consumers had an error on their credit report that could be corrected by a credit reporting agency. Twenty percent of consumers who found errors saw their credit scores increase after the error was removed.
Make sure your report is up to date before going to a lender for a car or home loan; you don’t want to be turned down for a mortgage for an avoidable mistake. If you find an error, file a dispute with the creditor and the credit bureau to be corrected immediately.
Why they are important
Your credit score is important for several reasons. First, it influences your chances of getting approved for a loan or credit card. This is especially important if you want to to buy a house in the future because your the score will influence your mortgage eligibility.
Your score also influences your interest rate; the higher your credit score, the lower your interest rate will be and vice versa. Because your score is supposed to show your ability to pay off your debts, lenders want to make sure that you will pay them off in full, so they might give you a higher interest rate or deny you completely if your score doesn’t. is not high enough. . It can get expensive in the long run and may even mean you have to rent instead of buying.
Getting your credit score and not your report is similar to getting a school test score without collecting the actual test. How do you know what you did wrong and what you did right without the actual test? Credit scores and reports work the same. You won’t know what influenced your score if you haven’t seen your report. Use a site like Rocket housesSM to get your score for free and view your report. Once you have this information, you can determine what impacted your score so you can take action to improve or maintain it.
Do you have questions about your credit rating? Post in the comments!
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