You never really think about it until you need a loan — your credit score. What is it and why do you need it? What’s a good one and what constitutes a bad one. Here are some answers to your most pressing questions.
What’s A Credit Score and Report?
A credit report is often thought of as something that is comprised of a report and score, both of which are used to determine one’s eligibility for credit. But, this isn’t true. A credit report is the actual report listing your credit accounts, your payment or credit status on each, and any positive or negative (derogatory) remarks.
A credit score is something that’s calculated based on a variety of different factors. It tells lenders your general creditworthiness.
According to Marks & Harrison, your credit can affect a lot of different things, like auto insurance. Many insurers fail to pay medical claims when a person is in an accident (or they fail to pay on time), and the payment is subsequently rejected by the medical center or hospital. The unpaid bill then gets reported on the person’s credit report, which makes it harder to obtain loans in the future. It may also (oddly enough) negatively impact the person’s insurance rates.
So, it’s important to pay attention to your report, because it can (and often does) impact your credit score.
What’s My Score Based On?
Your credit score is based on a lot of different things. For example, your score is based on payment history, credit utilization, average credit age, account mix (credit cards, vs personal loans, vs secured loans), and credit inquiries (how many times you’ve applied for credit).
For example, when you apply at a bank for credit, the bank will run your credit report. Each time it does, an inquiry is put against your credit report. Too many of these inquiries can make your credit score fall, and make it harder for you to get a loan, or get a loan at a reasonable interest rate.
Another way scores are affected are by the average age of your accounts. If you have a credit account, like a credit card, that’s new, your score may not be as high as if you had aged accounts with a credit and payment history associated with them.
Payment history is obviously a good thing. The longer and better your payment history, the better your score. How you use your credit also matters. Do you constantly max out your credit cards? This is not good, and it will reflect negatively on your score.
How Much Does It Cost To Get My Credit Report And Score?
You are legally entitled to get a free copy of your annual credit report from every major credit reporting agency. Equifax, Experian, and TransUnion all maintain credit reports on you. You can also get your credit scores for free from places like Credit.com.
Will Checking My Own Score Hurt Me?
Generally, no. Only “hard” inquiries (inquiries made by others when you apply for credit) affect your credit score.
How Many Different Scores Are There?
There are many different scoring systems out there. But, the most popular is the FICO score. When trying to figure out where you stand, make sure you’re comparing the same score and that you know the range for good and bad. For example, a 750 FICO score is not always equal to 750 on another scoring system.
How Long Does Credit Information Stay On My Report?
Eventually, even negative information falls off your credit report. Usually, it takes 7 years for a bankruptcy to come off the report, but other information may come off sooner.
Addie Tilghman works in the loans department and wants to help people better understand their credit score – She is doing this through article writing and hopes it’s of use to folk!