It seems like we are constantly hearing about our “Credit Score,” like we are being graded on it, but what is a credit score, and how much does it truly affect us? Remember those “Pop” quizzes you may or may not have been prepared to take? Credit Scores are like that for so many Americans. Some are prepared, and some are not, but they need to be.
We are being graded and given a score constantly, yet many need help understanding the subject. One in eight Americans are unaware of their credit score, and About 4 in 10 Americans have no idea how their credit score is determined. You need to prepare and be ready to get a good score or grade. Also, know that you can take steps to improve your grade if you don’t like it. You can get the grade you want with proper preparation and a little effort.
What are You Being Graded on, and Why is it Important?
Your credit score is a three-digit number that ranges from 300-850. These three little numbers represent your creditworthiness based on your credit report. When you are deemed “creditworthy,” it means you have a good history of paying your bills on time, have a manageable amount of debt, and have a good credit score.
Why is this important, and what can it affect?
- Your ability to get approved for loans, credit cards, and other financial products.
- Your ability to get a job or rent an apartment.
- Your interest rate and fees applied.
- Your insurance premiums.
Just like in school, the higher your grade, the better. Higher scores tend to get you better interest rates on loans, access to credit cards with better perks and lower interest rates, access to better jobs, the ability to rent nicer homes and apartments, and even pay less for insurance.
How is this grade calculated?
To calculate a credit score, your credit report must contain enough information to base a score. Generally, this means you must have at least one account that has been open for six months or longer, and activity in that account must have been reported to a credit bureau within the past six months.
Credit Scores are calculated using information from your credit report, which includes your payment history, amount of debt, length of credit history, types of credit accounts, and recent credit inquiries. Payment history is the most important factor in determining your Credit Score, as it shows how well you manage your debts. Other factors, such as the amount of debt, length of credit history, types of credit accounts, and recent credit inquiries, also play a role.
It is calculated by each of the three major credit bureaus (Equifax, Experian, and TransUnion). A good score range is typically 670-739. A good Credit Score is generally considered anything above 700, while a bad Credit Score is typically below 600. One of the most popular brands of credit scores is the FICO Score, created by the Fair Isaac Corporation. Most lenders use the FICO Score. A good FICO Score falls between 670 and 739, while an exceptional score measures 800 and above. The average American has a credit score of 714, according to data from Experian. That’s considered ‘good’ by FICO score ranges.
How Can You Improve Your Score?
Just like with a grade, if you don’t like your credit score, there are things you can do to improve it. Paying your bills on time, keeping your credit utilization low, and checking your credit report for errors are good ways to improve your score.Improving your credit score is essential to accessing better financial products and services.
First, you should obtain a copy of your credit report from the three major credit bureaus (Experian, Equifax, and TransUnion). This will allow you to review all the information being reported about you and identify any errors or inaccuracies.
How Can You Get a Copy of Your Credit Report?
You can order a free credit score from one of the three major credit bureaus: Experian, Equifax, and TransUnion. You should check your credit score at least once a year to ensure it is accurate and up-to-date. Checking your credit score more often than that may be beneficial if you are actively trying to improve your credit or suspect any suspicious activity on your account.
Paying all your bills on time and keeping your balances low are important. Paying off debt and maintaining your utilization ratio below 30% are good ways to improve your credit score. You might even consider applying for a secured credit card, taking out a small loan, and making regular payments on time to demonstrate responsible borrowing behavior. Additionally, you can look into credit repair services or debt consolidation to help you get back on track.
What if There are Errors in Your Report?
Under the Fair Credit Reporting Act, the three credit reporting agencies and the information provider (that is, the person, company, or organization providing information about you to a credit reporting agency) are responsible for correcting inaccurate or incomplete information in your report. If you find errors on your credit report, you may dispute the information with the credit bureau and request that it be deleted or corrected. Contact the credit reporting agency and the information provider to take advantage of all your rights under this federal law.
Suppose an investigation doesn’t resolve your dispute with the credit reporting company. In that case, you can ask that a brief statement of the dispute be included in your file and included or summarized in future reports. You can also ask the credit reporting agency to provide your statement to anyone who received a copy of your report recently, but you may have to pay a fee for this service. Also, if you are dissatisfied with the resolution, you can submit a complaint to the Consumer Financial Protection Bureau.
When it comes to your financial future, your credit report and score are incredibly important. By understanding why your credit score is so important and how it’s calculated, you can take steps to improve it and ensure that you’re in the best possible financial position. We understand how things can be confusing, so we have a team of experts to walk you through the whole process. Let us know if you have any questions regarding your credit report or concerns about getting a loan.
*Certain Restrictions May Apply.
For more information, visit MyCreditUnion.gov