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Your credit score can affect nearly every aspect of your financial life. From buying your first home to finding a new job, it can make or break your next move. The following are some common situations in which credit scores impact consumers:
- Buying a home
- Applying for a job
- Opening a credit card account
- Renting a house or apartment
- Paying insurance premiums
Although your credit score doesn't tell the whole story, it does offer a way for lenders to gauge your creditworthiness. And, fair or not, it even represents your character on paper. Employers may deem you unreliable or even unworthy of their trust if your score shows a history of nonpayment.
What is a Credit Score?
Although some organizations use other scoring systems, a creditor, employer or insurer will most likely examine your FICO score. In fact, FICO, the software company generating your score, estimates that 90 percent of top lending institutions use it in the decision-making process. The number is based on information from your credit history.
Many major lenders report customers' payment information to one of three major credit bureaus on a regular basis. The bureaus include Experian, TransUnion and Equifax. Information reported usually includes the amount paid, your remaining balance and whether the payment was made on time or 30, 60, 90 or 120 days late. When someone looks at your credit score, they're seeing a snapshot of your financial habits.
Why You Should Know Your Credit Score Now
Whether your score affects your life in the immediate future or somewhere down the road, it's important to know where you stand. While most companies strive to accurately report customers' payment histories, mistakes happen. When you request a copy of your credit report, you can dispute inaccuracies. If your claim is valid, the credit reporting agency will require the company at fault to supply correct information. Many consumers see improvements in their scores after inaccuracies are corrected.
Once you have your score in hand, you can get some idea of how attractive it is to lenders and other companies. Although organizations often have varying ideas about what constitutes a good score, you can at least find out whether yours falls into an acceptable range by most standards. In addition to knowing your credit score, it's a good idea to monitor your report for signs of identity theft or credit fraud.
So, What is a Good Credit Score?
According to Experian, most scores fall somewhere between 600 and 750. A score of 700 or higher is generally considered an indicator of sound credit management. However, a company's reason for requesting your score plays into their idea of a respectable FICO score. A landlord, for example, may not be looking for excellent credit. Landlords and rental companies will likely use your credit history in combination with rental screening reports and other information to ensure that you aren't an eviction or nonpayment risk. Mortgage companies and other lenders generally look for higher scores.
How Can I Get My Credit Score?
If you have recently been denied credit based on information in your credit report, you'll receive a notice containing the name and contact information of the credit bureau that supplied your score. You're due a free copy of your credit report from that agency if you request it within 60 days of receiving the notice.
Everyone is entitled to one free copy of his or her credit history every 12 months. According to the Federal Trade Commission, or FTC, this free annual report is available only at http://www.annualcreditreport.com/. You may request a yearly credit report from each of the three credit bureaus.
If you've already received your free yearly report but need the most recent version, you can pay for a copy from each of the three bureaus:
Equifax:
1.800.685.1111 or equifax.com
Experian:
1.888.397.3742 or experian.com
TransUnion:
1.800.916.8800 or transunion.com
Other Ways to Get Your Credit Score
Some credit card companies now provide customers with their updated credit scores as a courtesy. Credit monitoring services offer this service for a fee. In addition, Credit Karma, Quizzle, Credit.com and Credit Sesame offer credit score reporting when you sign up for their free services. The sites use scoring data from the major credit bureaus and other risk-reporting agencies.