What is your credit score? If you don’t know your
credit score, it’s time to find out. In this article we’ll give you
some very good reasons for knowing how you rate with creditors, and how to monitor
your credit score.
First, a little background. Your
credit score is based on information about you from companies that gave you
credit in the past. They report on your payment history to the three major
credit reporting bureaus, who then create a numerical score, sometimes call a FICO score
(it’s named after the Fair Isaac Corporation).
You can think of your credit
score like grades on a test in school. The higher your score, the better
your credit rating.
FICO scores range from 300 to a perfect 850. Anything under 700 is
in need of some improvement. So why should you care?
Reason #1: A more affordable mortgage. A higher credit
score will get you a lower rate on your home loan. Particularly in these days
of tightening credit, banks pay close attention to your
FICO score when you apply for a home loan. Just a 2% reduction in the
interest rate on a 30 year fixed mortgage on a $200,000 home will save you nearly
$100,000!
Reason #2: Lower insurance premiums. Many auto insurance
and health insurance companies check your
credit score before they set the premium on your insurance. They have
found that people with a higher
FICO score are less likely to file a claim against their policy. So,
they reward customers with better credit by offering them a lower premium on life,
health, and auto insurance.
Reason #3: A better job. It’s true. More and
more employers are checking your
credit report when you apply for a job. While they may be getting the
report to verify the information you put on your job application, what’s to stop
them from seeing how you handle your financial affairs, too?
So, many more aspects of your life are being affected by your
credit score than you might have imagined. Raise your score, and you
may well raise your standard of living through lower interest rates, a better job,
and a more affordable lifestyle. Back to the original question: What
is your credit score?
It’s easy to get a copy of your
credit report. In fact, you are due a free copy each year from the
three major credit reporting bureaus. Just log on to
annualcreditreport.com (this is a web site supported by the credit bureaus).
It is entirely your choice whether you order all three
credit reports at the same time or order one now and others later. The
advantage of ordering all three at the same time is that you can compare them. However,
you will not be eligible for another free credit report for 12 months. On
the other hand, the advantage of ordering one now and others later (for example,
one credit report every four months) is that you can keep track of any changes or
new information that may appear on your credit report. It is important to
monitor your credit report, since it does change over time as your lenders send
new information.
Note that your free
credit report will not contain your
FICO score. The three major credit bureaus (Equifax, Experian, and
TransUnion) will be happy to sell you that piece of information, as will any number
of other web sites. Shop around for the best deal.