I think everyone has probably seen those slightly annoying Freecreditscore.com commercials. The songs are the kind of ear worms that get stuck in your head for days. But as irritating as they might be, their message is actually really important – your credit score has a big impact on your financial future. Your credit score is one of the most important deciding factors about whether or not you get a home or auto loan, be approved to rent a property, or be approved for any other type of loan. It’s important that you know what your credit score is and what affects your score. This post, Your Credit Score 101 is designed to help you understand it a bit better.
The way credit bureaus calculate your credit score is a complicated process that I won’t attempt to explain here. But the following is a graph (from The Wall Street Journal) that illustrates the factors that determine your credit score and their importance:
People frequently want to know what is considered a “good” score and what is considered a “bad” score. It’s not really a simple answer. But the following chart (from www.credit.org) is a really clear illustration of how your credit score affects the rates you can expect to get for different kind of loans. This is a really clear and helpful tool to remind you that small mistakes now can affect you in big ways.
You can access your credit score by contacting the credit bureaus directly. The Fair and Accurate Credit Transactions Act entitles you to a free copy of your credit report once a year from the three major credit bureaus: Equifax, TransUnion, and Experian. You can request your credit report online or via their toll-free numbers. Visit www.annualcreditreport.com. You can also monitor your credit on a day to day basis using any of the free credit score apps that are now available at the click of a button.
It’s important that you know what your credit score is and any actions that might affect your score negatively. Knowing your score empowers you to improve it, maintain, and use it to your advantage.