Credit reports are a historical tracking system of how you use credit. The information and data contained in credit reports is used to calculate your 3-digit credit scores. If you are planning to apply for a car loan, mortgage, or credit card, lenders will look at two things to help determine if you will follow their guidelines to pay back any money you borrow: your credit scores and credit reports.
What is a Credit Score?
Your credit score is a number that represents your credit history and helps a lender or bank calculate the level of “risk” they take on by lending you money. The “risk” is the likelihood of you paying the money back.
The FICO score rating system is the most commonly used credit score rating system. It’s the first thing a lender will look at when you apply. Your FICO score can range from 300-850, and 850 is the best possible score.
Your credit score will continue to change over time as you complete new financial transactions. The changes can go both ways. Good financial habits help keep your credit score strong. There are also some practices that can hurt your credit score.
Good Financial Disciplines that Help Your Credit Score
- Pay bills on time
- No loan defaults (failure to pay back a loan)
- Low credit utilization ratio (Your credit utilization ratio is the percentage of credit you are using of the total available credit limit on your credit card accounts)
Things that Damage Your Credit Score
- Missed loan and credit card payments, especially multiple missed payments
- Carry excessive debt (examples might be large unpaid loans or credit card balances)
How to Check Credit Score for FREE
People are increasingly aware of how important their credit score is for their financial well-being. That’s why people ask what is a good credit score, so they know how they rank. There are many companies who charge a fee to provide you with this information. However to be more competitive, the recent trend for many banks and credit card companies is to offer a credit score service for free to their customers. Sometimes these institutions will include your credit score on your statements, or it may be included on your account when you are logged into your online profile. Check with your financial institution to see if they are doing this or will do it for you.
What is a Credit Report?
Credit reports contain all of your lines of credit and payment history since you began borrowing and spending (non-cash transactions). They contain all of the accounts you’ve ever opened or closed (even that Kohls card you signed up for to get an additional 25% off). They contain all of the loans you’ve taken out. And, they contain all of the payments you’ve made to pay off outstanding debt. One thing to note is that sometimes credit reports have errors. It’s important you look through your credit reports carefully and dispute any errors you find.
FREE Credit Reports
As an American, every 12 months you can get one free credit history report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Each of the three credit reports may have different information, so it’s good to review all of them. You cannot be sure which report the lender will look at to evaluate your credit history when applying for a credit card, loan, insurance or job so keep them all up to date and accurate. The easiest way to get your free credit history report is to visit AnnualCreditReport.com. It is the official credit history report website featured by the U.S. federal government, Consumer Financial Protection Bureau.
What is a Good Credit Score to get a Mortgage?
Typically you want a credit score of 620 or higher. It will depend upon if you’re looking to purchase a house or refinance your current mortgage. To learn more about good credit scores, Homes for Heroes breaks down the qualifying credit scores for each type of home mortgage loan, how your credit score impacts interest rates, and helpful tips to improve your credit score if necessary.
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