For a simple 3-digit number, your credit score says a lot about you. Your credit score gives those who look at it a glimpse into your financial past and possible financial future. It can affect your ability to get a loan, land a job, secure housing, and more. Since it is so important to your financial future, it’s a good idea to become familiar with your score and what it means.
What is a credit score?
A credit score is a number that lenders use to evaluate your worthiness to borrow money and your ability to pay it back. Your credit score is based on your credit history, which includes information on your payment history, credit utilization rate, length of credit history, types of credit and recent credit inquiries.
How do you find your credit score?
One of the best things you can do is know your credit score. If you regularly check your credit reports, you can be aware of and report any errors or inconsistencies that are affecting your credit score.
Credit reports are generated by the three major credit bureaus – Transunion, Experian and Equifax. You can request a free copy of your credit report from each of the 3 bureaus each year. Many credit issuers also offer services that allow you to view your credit scores for free. You can check with your bank or credit card issuer to see if they offer these services to you.
How does your score affect your life?
1. Interest Rates
Anytime you apply for a loan, a lender is likely going to review your credit history and credit score. Lenders use your credit score to determine the likelihood that you will repay your loan as outlined in your loan terms. Lenders may also use your credit score to determine your interest rate and down payment requirement. This applies to home loans, car loans, personal loans, credit cards and more.
2. Insurance Rates
Insurance companies may also review your credit history before determining your rates. They use the information in your credit report to determine your insurance score. This insurance score is then used to determine your overall insurability, which can affect your monthly premiums and your ability to qualify for discounts off of normal insurance rates.
Some employers check the credit reports of prospective employees before extending job offers. They do this to predict your level of responsibility at work by looking at how financially responsible you’ve been in the past.
Some landlords insist on seeing your credit report as part of your lease application. You have to give your permission in writing, but with a quick credit check, your landlord or property manager can make assumptions about your ability to pay rent on time.
Many internet, TV, and cell providers will also check your credit before giving you service. By viewing your credit report, these companies make predictions about your ability to pay your utilities.
How can you improve your score?
There are things you can do to improve your score, including paying your credit card statements on time, making more than your minimum monthly payment, using less of your total amount of credit, and keeping your oldest lines of credit open.
If you don’t have any credit, you can always start building credit with a secured credit card. A secured credit card requires a deposit upfront, but it can be a great way to build or rebuild credit.
For a 3-digit number, your credit score can affect you in a surprising number of ways. Become familiar with your score and how it impacts your life, and it can help you on your way to a better financial future.