First things first, you need to understand what it is. Your credit score is the statistical method that lenders use to determine how likely you are to pay back money borrowed, states Investopedia.com.
Credit, by its nature, is money that you borrow with a set time frame to pay it back. People with a higher, or better, credit rating get better rates on money that is lent out because there is less risk involved in loaning to them. This can be extremely helpful in many aspects of their financial lives.
For example, a high credit score will allow you to pay back at a smaller interest rate because you’re more likely to pay the money back in the first place.
This is an important measure when people get into certain junctures in their lives. Many places of employment look at the credit history of potential hires. Your bank will look at your credit rating before they agree to loan you money for a home or car.
Most banks need to have a credit rating of at least 600 before they do any sort of lending at a good rate. Even so, half of Americans don’t know their credit score, according to the Huffington Post. Without knowing this number, these people risk missing fraudulent activity, mistakes and may be getting bad deals when it comes to auto or home loans.
What You Need to Do to Know Your Credit Score:
Credit scores are very important to consumers as nearly every vendor or consumer Services Company will check credit scores before they accept you as a customer. You may have paid all your bills on time and you may think that you have a perfect credit score but mistakes do happen. In fact, the Federal Trade Commission states that one out of every five credit reports and credit scores has a mistake. This translates to more than 42 million mistakes in the database, and one of those mistakes could easily be affecting your financial future.
As a result, Yahoo recommends checking your credit history every year, or even twice a year. However, if you plan on applying for credit, such as buying a car or a home, it’s advisable that you check your full report and scores a couple of months before hand, advises The New York Times. That way you will have a chance to correct any mistakes that may have happened on your report and you’ll be able to do some adjustments to try to boost your score if you need to.
Can You Bypass This Process?
You can but it does mean that you have to nimble and quick and we do mean that literally. Credit bureaus do offer several options for customers in which they can get their credit scores for free. Here are a few you can try out:
- Get a credit card from a major lending organization – Major credit card companies like American Express and Discovery offer free FICO scores for consumers to lure them into taking on credit cards. Everyone can do with more credit cards, but be careful. Make sure you check the features and offers on each of these cards before you take them. You could be landing yourself in more credit card debt.
- Use free websites – There are numerous sites where you can access your free FICO Scores. All you have to do is open an account on the website, put in your personal details and your Social Security number, and the website will generate the FICO score and credit report through email. This does take a little time but it’s free.
- Sign up for a free trial – Experian and EquiFax have a 10 day free trial memberships can sign up for that will provide you with your credit score during the process. You do have to share your credit card details, but you are not billed immediately. You can give your details to the customer service representative and ask for your FICO Score. Once you have the score, you can then call back and cancel your membership immediately. You will have to be smart about it to get your freebie, or you could land up with a year’s membership to something you don’t really want.
A word of caution: Even though most of these methods are free, it’s a good idea to space out your requests for credit reports and credit scores over the year. Try to limit your requests to one report per month, since the score will not change dramatically from month-to-month unless you have become embroiled in a major financial mess.
Furthermore, most of these free options will only provide free credit reports from one credit bureau. That means you can get a single report from TransUnion, Experian or EquiFax. However, all of these companies get the same reports from the vendors. As a result, the FICO score of all three agencies should hover in the same range, give or take a few numbers. If there are dramatic differences in the scores, it’s time to start writing letters and emails and making as much noise as possible until the errors or differences are rectified or justified.
Featured image courtesy of Flickr – Sean MacEntee