It may seem strange, but there is a lot of confusion about credit scores and how they work. So, let’s discover more.
What Is a Credit Score?
A credit score is just a number that ranges from a low of 300 (bad) to 850 (exceptional). Either FICO or Vantage calculates it. Almost all lenders use it to weigh the risks of providing credit = loans for any purpose. These may include large purchases like homes or cars/trucks and smaller credit amounts like credit cards, student loans, or traditional loans.
Consider your credit score as a way for businesses to determine your worthiness. They check your credit score to see how you are doing when it comes to making payments on time, or if you defaulted on a loan, or even filed bankruptcy. Almost half of all Americans do not know their current credit scores. They vary from the three leading FICO companies (e.g., Experian or Transunion) but are generally very close in range to each other.
How to Find out Your Score
There are several online, free services that you can sign up for and get regular updates on your scores and look at details if you wish. They include CreditKarma and others. You can also check with your current lenders or credit card companies, as many of them have this service now.
Check Your Score When You Apply for a Traditional Loan
When considering getting a new car, new credit card, store credit card, etc., you should check your credit score first before you apply. It is not the only factor in a lender’s decision, but it is a significant part. If your score is low, you can often ask the potential lender what the minimum score they accept is. This can save you time as well as keep you from a small score hit from the application.
Consider Signing up for a Credit Score Monitoring Service
We recommend using a free service. Others out there charge a monthly fee, but why pay for what you can get for nothing. The big three free services are Credit Karma, Equifax Core Credit, and Experian’s credit monitoring.
You can call the three credit bureaus directly if you don’t want to sign up for a service and get the emails, etc.
Here are the phone numbers for them:
Equifax – 1-866-349-5191
Experian – 1-888-397-3742
TransUnion – 1-800-916-8800
How Do You Check Your Credit Report Online?
We recommend a service like Credit Karma, but if that is not for you, go online to AnnualCreditReport.com. You will be asked to provide personal information, like your birthday, social security number, address, etc., so be prepared for this.
What to Do When You Have Bad Credit?
Many people have poor or bad credit. No matter your score, there are ways to improve it quickly and save a lot of money in the future. The first is to get your debts paid off. Start with the highest interest but small account that you can get paid off. Then go to the next and so on.
Like most medical bills, some expenses can be paid off over a long period without any interest expense (and often are not reported to the credit bureaus either). If you make even small payments, they will not send you to collections, and you can focus on the biggest savings opportunities that make the biggest difference in your scores.
The key is to keep at it and chip away; it is a long-term strategy, not a short one. In the end, it can save you tens of thousands of dollars in interest expense or even hundreds of thousands. Now that is worth working at!
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