Your credit score is an important part of your financial life. There are many elements that contribute to it, and there are also many ways in which it affects your financial freedom. It can be difficult to know all there is to know, but we’ve compiled a list of the top ten questions people ask about credit scores. Of course, we’ve answered these questions for you!
- What is a credit score?
- How is my credit score calculated?
- What’s a credit report?
- Where can I see my credit report?
- What’s the difference between credit score and credit report?
- What is considered a good credit score?
- How do I build credit from scratch?
- Do I need to check my credit report?
- What factors affect my credit score?
- My credit score is currently low. How can you improve it?
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Credit Score: Top Ten Questions Answered
1. What is a credit score?
Your credit score is, essentially, a summary of your entire credit history. It is a three-digit number that gives financial institutions and lenders an idea of how credit-worthy you are. Therefore, it will affect your likeliness to get loans and the amount of interest you are charged. The most commonly used credit score is the FICO score, which ranges from 300 to 850.
2. How is my credit score calculated?
Several factors are taken into consideration when your credit score is being calculated, but these factors are all weighted differently. The most common way of calculating credit score is by considering:
- Credit history, worth 35%
- Utilization (the amount of money that you owe), 30%
- The length of your credit history, 15%
- The types of credit that you have, 10%
- New credit applications/accounts, 10%
3. What’s a credit report?
Your credit report is a summary of all of your activities as a borrower. This will include information like which institutions have lent you money and how much money they have lent. Your credit report will also include information about your payment history, positive or negative.
4. Where can I see my credit report?
If you doubt whether you can see or not your credit report, the answer is YES! In fact, you are entitled to one free credit report each year from each of our three national credit bureaus — Equifax, Experian, and TransUnion. Each of these agencies has their own version of your credit report, so technically, you have three. You’ll find that the information is generally the same, although each agency might have a different style of presenting the information.
5. What’s The Difference Between Credit Score and Credit Report?
A credit report contains information about your past credit activity and current credit situation while your credit score is a three-digit number used by lenders in the United States to evaluate how risky you are as a borrower. Credit reports are often lengthy and include information such as the age of your accounts and whether you have a reputation of paying bills on time. However, a credit report does not contain a borrower’s credit score.
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6. What is considered a good credit score?
Generally speaking, the closer you are to having a perfect 800 on the FICO scale, the better your score is. Creditors normally consider consumers with a score of above 700 to have good credit. If your score falls below 650 and is edging closer to 500, you may experience more difficulties with getting loans or acceptable interest rates.
7. How do I build credit from scratch?
No one gives you a credit card because you have no credit history? It can be difficult to access a loan when you don’t have a credit history, and that further makes it difficult to build that credit history up! It’s a frustrating chicken-and-egg situation. However, you can establish a credit history by opening a secured credit card, becoming an authorized user on someone else’s credit card, or taking out a credit-builder loan. Credit-builder loans are specifically designed for consumers wanting to establish or build credit.
8. Do I need to check my credit report?
It’s important that you frequently review your credit report from each of the credit bureaus mentioned earlier, especially before you take out a new major loan, like a mortgage or auto loan. Although credit bureaus are thorough, there is still room for error, and checking your report will give you the opportunity to identify these errors and begin taking steps to correct them.
9. What factors affect my credit score?
When you check your own credit or receive promotional credit offers that have “pre-approved” you, a so-called “soft pull” inquiry has been performed. Soft pull inquiries are only visible to you and do not affect it. When lenders check your credit report, for reasons such as to open a new account or verify eligibility for credit extensions, a “hard pull” is performed. These “hard inquiries” are listed on your credit report. When a hard pull is performed, generally up to five points can be deducted from your credit score.
10. My credit score is currently low. Am I financially doomed forever?
Thankfully, there are many ways to improve your it. It will take dedication and patience, but making payments on time, minimizing your debt, paying at least a monthly minimum on your loans, and using other strategies can help boost your credit score over time. If you need help, you can also seek help from an specialist credit repair company.