Your credit score is an important piece of information that can have a huge impact on your life, particularly when it comes time to make large purchases. Your credit score is a reflection of your credit history, which is your track record of handling debt. In order for lenders or creditors to extend you credit or offer you a loan, you need to have some history of debt.
However, merely having debt is not enough to qualify you for a loan or credit card. How you manage that debt is even more important. This includes paying back loans on time and making regularly scheduled credit card payments, among other factors. The information below provides some more details on credit reports and credit scores and why they are important.
Why Credit Matters
Individuals need to care about their credit report when they are looking to get a credit card, take out a loan and even calculate the interest rate on their loans. You will generally build your credit over a long period of time by responsibly paying your normal bills and loans, and in doing so, you can add mortgages, car loans and more over time. Without a good credit report, you cannot get these important loans, and it may be difficult for you to qualify for credit cards. Even if you do get approved for a loan or credit card, the amounts may be small and the interest rates may be very high, which can defeat the purpose of applying for a loan or line of credit. Because credit is so important, it is advisable for you to know the ins and outs of credit scores and credit reports
What is a credit report?
A credit report is a collection of information about you and your credit history. Your credit report includes your information such as your name, Social Security Number, address and employer. Credit reports also include information about credit cards, loans and other debts. A report also includes public information such as bankruptcies, wage garnishments and more. Your report reveals the status of your debts, indicating whether they are paid, being collected or past due.
What is a credit score?
Your credit score is a numeric value that represents your trustworthiness when it comes to paying back loans on time. It is a crucial number to consider, as it can determine whether you can get a new loan, rent an apartment, rent a car, lower your insurance rate or payments and more. These scores are made of many different factors, which are further outlined below.
What affects a credit score?
There are many factors that can affect your credit score. Many of these factors have to do with your past history of repaying your debt, which includes making timely credit card payments. Other factors that can affect your credit score include the number of credit cards you have open and the amount of debt that you currently have. Things like bankruptcy can also greatly impact your credit score.
Improving Your Credit Score
Your credit score is dynamic and can change constantly, depending on your financial activities. This means that you must always be conscious of the financial decisions you make, as these can affect your credit score. This also means that you have the ability to improve your credit score if it falls into the negative range. There are many tips and tricks for improving your credit score that only require a little planning and determination on your part.
You should be aware that improving your credit score can take a long time, depending on the nature of your current credit. Some factors that affect your credit score can be easily fixed, but others may require more dedication. However, if you keep at it, then you can eventually improve your credit and start qualifying for the loans you need.
The Importance of Knowing Your Credit Score
Knowing your credit score can help you to plan your finances better, such as creating a proper budget. By keeping track of your credit score, you can determine whether you need to budget more money for paying off debt. Knowing your credit score can also help you keep track of fraud or identity theft. If you suddenly notice that your credit score has dropped, then this may signal that someone has opened a line of credit or taken out a loan in your name and you can address the fraud before it becomes a bigger problem.
Additionally, being aware of your credit score can help you when you need to make a large purchase, such as buying a home or a motor vehicle. Large purchases like these often require that you take out a loan, and the terms of your loan are often based on your credit score and credit history. Knowing your credit score can help you make estimates about how much money you may be approved for as well as the interest rates. By having this information, you can create a more accurate budget for yourself.
How to Check Your Credit Report and Credit Score
Knowing how to check your credit report and credit score is just as important as being aware of their importance. There are three major credit-reporting agencies in the United States, which are Experian, TransUnion and Equifax. The U.S. government allows you to obtain a free credit report from each of these agencies once every 12 months. You can request these reports individually from each of these agencies or you can use a third-party company that will request them for you.
It is important to know that your credit reports, particularly the free ones you are entitled to, do not contain your credit score. Each of the agencies mentioned above has a different scoring system, and you can request scores from each of them. Many other entities may also have their own credit score systems, including your bank or credit card company. Different lenders or creditors may look at credit scores from different agencies.