Do you understand your credit score?
Credit scores are a mystery to many but understanding your score, and the impact to your financial success is vital. The goal is to provide a better understanding of your credit score.
What is a credit score?
A credit score also known as a Beacon® or Fico® score, provides a snapshot of your credit risk. A score will range from 400 – 850. The average person has a credit score in the 700 range. Scores in this range will receive the lowest interest rates. Any score lower than 640 will receive higher interest rates.
What is on a credit bureau report?
A credit report will include a complete list of payment history, outstanding debt, available credit, credit duration, inquiries and types of credit. Creditors check credit reports for two main reasons;
1. The number of inquiries on a report and;
2. Payment history of the applicant.
Every time a person applies for credit, the creditor checks the report. Each inquiry will remain on record for three years. A report without any recent inquiries indicate; the applicants’ been denied by other creditors. A report with too many inquiries indicates; the applicant is desperate for more credit.
A creditor will also need to check bill payments are timely. Every payment made receives a rating. An R1 rating is the highest rating; it indicates payments are prompt. Late payments and missed payment will lower the rating. An R9 rating is the lowest rating it indicates missing and/or consistently late payments.
Credit bureau reports will usually contain errors. Check all the personal information on the report. The bureau will correct any errors related to personal information. Any creditor discrepancies on the report must be addressed with the company. Review your report at least once a year or shortly before approaching lenders to ensure there are no errors. To obtain a copy of your credit report contact Equifax.
There are a few things to do to improve your score.
1. You should request a copy of your report annually and check for any errors.
2. Limit the number inquires to your credit bureau.
3. Pay your bills on time.