A recent survey conducted by the Consumer Federation of America resulted in alarming findings. Only a fourth of consumers knew that a low credit score could increase the cost of a loan by more than 25 percent. A majority of participants also had no idea non-financial institutions use credit scores as a basis for eligibility or as a determinant for security deposits. Credit scores, high or low, can be very impactful in the life of a consumer. Staying on top of credit score should be as much of a healthy financial habit as budgeting.
A credit score is the figure lenders use to determine aptitude of a potential borrower. It is a three-digit number that shows the likelihood of the borrower to repay their debt. Score will also influence the type of loan a borrower can attain. Calculations are determined using findings from credit reports, typically distributed by three bureaus: Experian, TransUnion, and Equifax.
The difference in a score and report can be explained pretty simply. A score is the numerical value assigned to the results of your report. A report is the summary of all occurrences, good and bad, given to the three credit bureaus. So, a close look at your report can explain the assignment of credit score.
Your score is determined by your standing with current and past lenders. Things like open credit lines, payment history, and reported collections can affect score. It can also be affected by credit type, credit limits, and hard inquiries. You may even find that your scores will vary between the bureaus. This is because lenders may report to one and not the other, or lenders’ scoring models may vary.
No credit will produce a score usually below 350. You have to start somewhere, right? Talk to your lender about options to establish a path to good credit history.
A score of under 580 is considered poor. This could be the result of bankruptcy or multiple defaults. Someone with a score in this range should seek professional help to repair credit.
A fair credit score ranges from 580-669. An individual in this range is considered average, with perhaps small dings in credit history. They will likely be approved for lending, but will not receive competitive rates.
A score of 670-739 is deemed good. These consumers are slightly above average and will likely be extended competitive rates. However, they may still be limited when considered for some types of credit.
Very good credit is a range of 740-799. This consumer is on time with all payments including credit, rent, loans, and utility bills. They are trustworthy borrowers.
A score of 800+ is exceptional. These individuals will be offered the lowest and most competitive rates.
Consumers are entitled to one free credit report annually from each bureau. This can be obtained from the Annual Credit Report website.
However, credit score is necessarily included in your report. Many monthly credit card statements will include your score. You can also find a free credit scoring site.
Checking reports regularly is part of being a responsible consumer. A common misconception is checking report will adversely affect your score. However, checking your own score is considered a soft inquiry, and will not leave a negative impact.
You are ultimately responsible for establishing and maintaining good credit. If your credit needs a major boost there are proven, actionable steps to begin. If you feel lost, a credit repair and management company can be your advocate in the journey to credit wellness.