Many of us pay no attention at all to our credit scores until the day we want something we can’t have without an acceptable credit score. You might want to buy a car or a house or consolidate a student loan with a private lender. By that point, there isn’t a lot you can do about your score and your credit report. If you are afraid to see your credit score, that’s all the more reason to get a copy of your credit report and credit score so you can take steps to improve it.
Check Your Credit Score For Free
Annual Credit Reports
It’s easy to check your credit score and get your credit report, and you can do it for free. The three major credit reporting agencies are required to provide you with a free report every 12 months upon request under The Fair Credit Reporting Act (FCRA) . The three major credit agencies are TransUnion, Experian and Equifax. It is wise to request a report from each on at least a yearly basis. The credit scores you are assigned from each will be similar but not exact. Also, you may find an error on one report that you don’t see on the others. This could be anything from proof someone is using your identity to a failure to withdraw a lien that was paid off long ago.
Three Major Credit Agencies
Transunion, Experian and Equifax all have services where you can not only obtain your credit score and credit report, but you can also monitor your credit. For a monthly fee, this may include services such as unlimited updates, email alerts, the ability to lock and unlock your report, debt analysis, a score simulator where you can see how proposed actions can affect your credit report and identity theft insurance. Services may vary by agency.
You may also be able to get your credit score for free from your bank or credit card lender.
Credit Score Service
There are services beyond the big three agencies where you can check your credit score, but they will charge you. Since free options are available and you can get your credit score and credit report from the three major credit reporting agencies, it is unlikely you should have to use one of these other services.
What Your Credit Score Means
A credit score is a measurement that helps lenders determine how likely you are to pay them back. Normally, when people refer to a credit score, they are referring to a FICO score which was developed by Fair Isaac Corporation. This is the score that the vast majority of lending institutions use, and you can get it from Equifax, Experian and Transunion. Your FICO score will vary a bit among the three agencies, but they should be fairly close. There is another credit scoring system called VantageScore which was created in 2006 by the three big credit agencies, but it is much less commonly used.
Your FICO score is a three-digit number and ranges from a low of 300 to a high of 850. High scores represent low risk to lenders and low scores represent high risk to lenders. Therefore, 800 would be an extremely good score and 350 would be extremely bad.
According to Experian, this is the meaning of credit scores:
- 800 and above: Exceptional. You can get approved for just about anything. There is only a 1% chance that people with this credit score will become seriously delinquent.
- 740 to 799: Very good. This is an above average score that will earn you good interest rates. You will have no trouble buying a house. There is only a 2% chance that people with this credit score will become seriously delinquent.
- 670 to 739: Good. This is the median credit score in the United States. 8% of people with this credit score are likely to become seriously delinquent.
- 580 to 679: Fair: If your score is in this range, you are considered a subprime borrower. Expect to pay high interest rates. 28% of people with this credit score are likely to become seriously delinquent.
- 579 and below: Poor This is the range where utility companies may ask you for a deposit, and you may be rejected for credit cards.
Here is additional information on what is considered a good credit score.
How Your Credit Score is Calculated
Five factors make up your FICO credit score.
- Payment history makes up 35% of your FICO score. Your score is penalized according to missing payments, number of days you are late and how recently you have missed payments.
- The amount you owe makes up 30% of your FICO score. The FICO score reflects the total you owe, your number of creditors, types of accounts to which you owe money, and very importantly, how much you owe compared to your available credit. If you have maxed out your credit, it will adversely impact your FICO score. Best to keep your debt below 30% of your available credit. However, if you have small balances and always pay on time, that can raise your credit score.
- Length of your credit history makes up 15% of your credit score. The longer your history of making timely payments, the better your credit score. This is one of the reasons that younger people have lower credit scores on average than older people. So, if you are under 30 and can’t understand why your excellent repayment practices have not put you at the top of the FICO rankings, relax. You may just need to build up a longer credit history.
- Types of accounts make up 10% of your score. Common advice is to carry different types of credit in order to improve your credit score. For example, you might carry an installment loan for your car or student loan, a credit card and a mortgage.
- Recent credit activity makes up the last 10%. If you suddenly open many accounts, it may signal that you are having financial difficulty.
When lenders decide whether to give you a loan and at what rate, they will consider your credit score. However, that is not the only thing they consider. For example, they may also look at your income, your length of employment and other factors that are not reflected in your credit score. So, your credit score is significant, but it is not the whole picture.
Why Your Credit Score Is Important
Your credit score impacts what you are able to do and to buy. If you have a good credit score, you will be more likely to be able to consolidate your student loans at an attractive rate, or with a better credit score you may get better terms on an car lease. With a bad credit score, you may be refused that apartment you want to rent or refused a loan for that house you want to buy. Don’t wait until a lender or a business is evaluating you. Check your credit score once a year at the very least. If you are trying to raise your credit score, we have seven tips that can increase your credit score in 30 days. If you don’t check your credit score, it will be impossible to improve it. Absent a watchful eye, your credit score may decrease. Check your credit score and credit report to see
- Spending and payment trends which you can improve
- Errors on your report
- Negative items such as liens that should be deleted from your report
- Possible identity theft that can decimate your credit score
A little bit of oversight can make a big difference in your quality of life.