Your credit score is a critical metric determining how likely you are to receive a loan, be approved for a mortgage, and more. It is common practice for companies to check your credit history before making decisions about their financial relationship with you, so you must monitor your credit report regularly and make sure there are no errors in your history. Plus, monitoring your credit continuously is essential because it can affect the amount of money you pay for loans and big purchases.Â
What is a Credit Score, and Why it’s Important
A credit score is a number given to individuals used by financial institutions to help determine their risk as borrowers; this decision will affect their interest rate on mortgages, car loans, and more. Credit bureaus assign a score on different factors associated with lending money to people based on specific requirements. Some of these criteria include payment history, number of credit cards held, length of the credit history, and balances carried by total available limit.
Credit scores are important because they affect a person’s ability to borrow money from a financial institution or lending agency. This is especially true with large and significant purchases such as homes, cars, and major appliances. Borrowers with low credit scores may pay much higher interest rates than those with high credit scores. The longer your payment history, the more likely it will be that future lenders will approve your requests for financing, and the lower your interest rates will be. Your credit score can even affect other parts of your life, like renting an apartment or getting a job.
Why you Should Know your Credit Score
We live in a world where we depend on credit. Things become much more challenging without it: buying a house or car is more complex and can take longer, and getting a loan is more complicated and expensive. For these reasons and more, like protecting yourself from identity theft or building good borrowing habits, you need to know your credit score. Knowing what kind of borrower you are can help keep debt at a manageable level and improve the likelihood that you’ll be able to borrow money when necessary.Â
People who constantly monitor their credit score are more aware of how to improve or maintain it. It is good practice to monitor your credit score, even if you have a higher score. Managing your credit score often will allow you to see errors in your account and know your credit is prepared when you make a large purchase.
If you don’t know your credit score going into an application process, it could be hard to understand why the lender says no. Monitoring your credit score regularly will help you know how lenders view your credit. Plus, sometimes lenders accidentally report incorrect information about what borrowers owe them or their histories. You should check your reports at least twice per year for any inaccuracy in your scores. Credit monitoring is critical if you want to be aware of any mistakes in your information to maintain and grow your credit score.
How Do You Read a Credit Report?
Credit reports appear differently depending on who the reports are from, but they all present information that helps you assess your credit history. When reading your credit report, you want to check all your personal information, such as social security numbers, associated addresses, spouses, co-applicants, current, and past employers, to ensure this information is correct. You will want to pay attention to your accounts to ensure all account and payment information is accurate and that you opened the accounts. Read about your payment history, including collections and public records, to better manage and monitor your credit.Â
What is a Good Credit Score?
There isn’t just one definition of what constitutes a good credit score, but there are general guidelines that most lenders use when evaluating someone’s creditworthiness. Generally speaking, anything above 700 is considered good, but the higher your score is above this number, the more you will benefit.
The highest credit score you can obtain is 850. Keep in mind that there are many different credit scores, including FICO and VantageScores, which vary by the type of loan. To find out your specific score range, check with the three major credit reporting agencies: Equifax, Experian, or TransUnion.
How Long Do Inquiries Stay on Your Credit Report?Â
Two types of credit inquiries can be made, soft and hard credit checks. Soft inquiries occur when you or another person checks your score, like if you signed up for a promotion, and these inquiries do not affect your credit score. Hard credit inquiries are when you apply for a line of credit through an institution, and they officially check your credit with the three major credit bureaus. This does affect your credit score, usually by around 5 points, and will stay on your report for 24 months.Â
Understanding your credit score is a crucial first step to financial success. You may not think about it often, but monitoring and understanding your credit score can have a significant impact on your chance to get approved for loans, find the best mortgage rates, or even purchase a home one day. Everyone should monitor their credit reports annually at least, if not more often, to make sure there aren’t any errors or fraud that could affect their ability to qualify for loans in the future.
There are many tools available that make checking your credit report easy. Through Movoto’s partnership with ImportantScore, you can receive your Experian credit report and FICO score for free to get a head start on monitoring your credit.
