Your credit score is more than a tool for lenders – it’s an important part of your financial picture. Here are five things you need to know about your credit score:
It’s actually three numbers. There are three credit reporting agencies – Equifax, TransUnion and Experian. Each has its own scoring model, so your score may vary a bit between agencies. At all three, your score will be a three-digit number ranging from 300-850. The bigger the number, the better your credit rating.
You need to check your score, and check it often. Your credit score is updated each time a potential lender requests your score or a credit reporting agency receives new information about you. Checking frequently will help you spot signs of possible identity theft sooner rather than later.
It’s about more than just paying your bills on time. Your credit scores are also based on factors like how long you’ve had credit; the types of credit you have (credit cards, auto loans, student loans, mortgages, etc.); your credit limits and how much of those limits you’re using; how much debt you have; and the number of inquiries made on your credit report. The bottom line: Your scores may vary, but they’re all based on the information in your credit reports. Checking your reports regularly will help you see where you could improve.
A good score can save you money. Lenders see it this way: people with high credit scores are a safe bet; those with lower scores pose more of a risk. If you’re in the higher-risk category, likely you’ll pay more if you need to borrow money. If you take out a mortgage to buy a house, and have a good credit score, you may qualify for a lower interest rate. Even a small difference – 1 percentage point or less – will save you thousands over the life of the loan. Ditto if you’re borrowing for a car, for college tuition or a personal loan. The better your credit score, the more you can save when you decide to borrow. You may also pay less for insurance premiums or avoid the need for a deposit on a cable or internet bill.
A good score can mean access to better deals. When you have good credit, lenders want to do business with you. Keep that number high, and you’ll likely find sweet deals for rewards credit cards or extra perks on your new checking and investment accounts.