Credit Scores and Why They Matter
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Do you ever wonder how lenders decide who gets a loan and who doesn’t? Ponder why you were turned down for that credit card? Think that you might file for bankruptcy and hope no one will ever know? If so, you need to know more about your credit report, how it works and how it can affect your financial future.
What is a Credit Report?
Your credit report contains financial data about you. Credit bureaus across the country compile credit information from banks, finance companies, merchants, credit card companies, and other creditors and enter it into a centralized computer system. Your report contains personal information like your address, social security number, and birth date. It may also contain information about your employment and income, spouse’s information, former addresses, etc.
More importantly, your credit report file details information about credit transactions, balances due, payment history, suits, judgments and tax liens. Your record also shows if you have declared bankruptcy. This is especially important to note, because this information will not be removed from your file for seven to 10 years!
What is a Credit Score?
All the information from your credit report is calculated into one credit score, which can range in value from 300-850, with 300 being the lowest score and 850 being the highest score. Your credit score (frequently referred to as a FICO Score) is what potential creditors, lenders, landlords, employers, and others can look at when determining your financial responsibility and whether they want to lend or rent to you or even give you a job! It is possible to not have a credit score at all, which typically happens when a person doesn’t have enough credit history on their credit report to constitute having a credit score.
What is Considered a Good Score? The following chart indicates what constitutes an excellent, good, fair and poor credit score:
Who uses my Credit Report?
A potential creditor will usually check your credit report when you apply for a loan or credit card or rent an apartment. The lender or company will request a copy of your report and make the lending decision after reviewing your history. The lending company or landlord, not the credit bureau, makes the decision about whether you are approved or not. Potential employers may want to see your credit report as well. Your report cannot be accessed by just anyone who wants information about you. Anyone requesting a copy of your report must want it for an approved purpose and must be able to provide proof that they are a legitimate company with the right to view your report.
Why is my Credit Score Important?
Like we mentioned earlier, your credit report can determine a lot of important things. It can determine if you get approved for a car loan, if a landlord is willing to rent their property to you, if you can open a bank account, or even if an employer hires you! As the world moves away from cash for purchases and towards things like credit cards and online payments, credit scores are becoming more and more important – and having a good score can be crucial.
How Does my Score Affect my Rates & Terms?
Your credit score can affect the rates and terms that you are offered by a credit card or lending company in several ways. The link below provides an example of how your score can impact your interest rates, payment amounts and interest paid on an auto loan.