If you don’t know what a credit score is, it is time that you learned. Your credit score is a highly important number that financial institutions use to determine whether or not you are creditworthy. In other words, people use this score to help them decide whether or not they are going to lend you money.
You may go to your bank to apply for a loan. The first thing that the lender is going to do is find out what your credit score is. If this score proves that you are creditworthy, you will be approved for the loan. If the score shows that you are a bad credit risk, the lender will turn you down. If the lender doesn’t turn you down, he will charge you a high interest rate.
This is what happens at the insurance companies too. Agents decide whether they are going to offer you an insurance policy based on your credit score. Car insurance is a good example of this. Agents determine that you are not a good risk for auto insurance if you have a low credit score, so they will charge you more money for your premiums than they will charge someone with a high credit score.
Many other people use your credit score to determine whether or not they will do business with you. For example, an employer may not hire you if your credit score is low. If you try to rent an apartment, the landlord will check your credit score, and if it is low, she may not rent you the apartment.
Why is your credit score so important?
Your credit score tells people how well you have paid your bills in the past. This is important for someone to know before he grants you a loan. The Fair Isaac Corporation that is based in Minneapolis is just one type of credit score. This corporation has a report on everyone in the country, and it lists your important financial transactions and reduces this history to a number.
Your FICO score ranges from 300 to 850 with 850 being the best. With a score of 850, lenders reward you with the lowest interest rates. Equifax, TransUnion and Experian are the three major credit bureaus. These three bureaus collect financial information on you and apply the formula that FICO uses to the number that they give you. This is why you actually have three credit scores.
Your creditors report your financial information to the credit bureaus, and the credit bureaus keep the information in your reports. This is where your lender will find out whether or not you made all of your payments on time and if you repaid all of your loans.
Obtain your credit reports
You are entitled to one free credit report from each of the three credit bureaus every year. It is a good idea to get your credit reports so that you can ensure that everything is being reported correctly. If you have negative items that are incorrect, you can dispute those errors so that your credit scores will increase, and this is what you want.