Your credit score is your financial history and profile, comprised of a score that represents the likelihood you will repay your obligations on time. Your credit score can include:
- How promptly you pay off credit cards and loans.
- How consistently you pay rent, utilities, and other regular expenses.
- How much debt you have outstanding, and how much credit you have available on credit cards and home equity loans.
Credit bureaus are companies that analyze and report your credit history. The largest credit bureaus are Equifax, Experian, and TransUnion. 90% of credit bureaus use a single reporting system called a FICO score. A high score means you are a good credit risk; a low score means you may have questionable credit or perhaps not much credit established.
FICO scores range from 300 to 850. As a rule, here’s how those numbers rate:
- Excellent: 781 – 850
- Good: 661-780
- Fair: 601-660
- Poor: 501-600
- Bad: below 500
Any time you apply for a loan or credit, companies will check your credit score: banks and credit unions, credit card companies, and insurance and auto finance companies. Lenders use the score to determine if you are a good risk, and to calculate how much money they are willing to lend. Landlords and potential employers may also check your credit score to gauge your reliability and character.
With a high credit score, you’re more likely to get a loan. Also, the higher your score, the lower the interest rate you will pay. A high score can also ensure you land the job or apartment you wanting.
A lower score means that if you can secure a loan or credit, you’ll more than likely pay a higher interest rate. Everyone can improve his or her credit score on his or her own. The first step is to find out your score by logging on to www.Equifax.com, www.Experian.com or www.TransUnion.com. These credit bureaus charge a fee to provide you with a report. However, they, and sites like AnnualCreditReport.com, often offer an annual report for free.
When viewing the report, look closely to ensure your information is up-to-date and accurate. Pay special attention to any ‘derogatory entries.’ These are entries that indicate that you have missed a payment, had an account in collections, owe back taxes or had other credit issues.
Some derogatory entries can be incorrect. If they are, you will be paying for those mistakes with a lower credit score and higher interest payments. You might think you could make a call or send a letter and the credit bureaus would correct a mistaken entry. But the process is more complicated than that: you’ll need full documentation to support your argument and persistence to prevail. You can hire an attorney or credit professional to help you. Correcting errors on your credit history will improve your score and improve your financial future.
If you have questions, contact one of our loan officers. We’ll help guide you through the process.