What's My Score? Articles | Personal Finance

By: Darren Williger

How often do any of us ever check our credit score? Probably not often enough, we all wait until we go to apply for a loan, then we check, only to realize that there are few problems. By the time we realize there is a problem, it is too late to get the loan we want. To avoid this from happening you need to stay current on our score; this takes very little time, but will definitely pay off.

There are only three credit agencies you need to worry about and they are Equifax, TransUnion, and Experian. These are the agencies that all creditors and lenders use, however not all lenders and creditors report to all three of them. That is why checking all three agencies is so important. They collect all of your credit history and a score is assigned to give future lenders an idea what type of borrower you are. Five factors that make up your score are length of credit, types of credit, amounts owed, payment history, and any new credit. Each one creates your total credit score and what lenders will be looking for.

• Length of your credit history is important because it shows how long you have had good credit and how responsibly you pay your debt back. Cancelling cards you have had for a long time can actually lower your score.

• The type of credit you have available at your disposal. Have a wide range of credit history shows diversity and the ability to pay back all types of loans.

• How much you owe is a delicate balance. Having available credit is always good, not going over 50% of your limit. However, showing that you use your credit regularly is important also.

• Paying back your loans and credit cards in a timely manner is important. Late payments can be worse than an old bankruptcy.

• Signing up for new credit often can bring down your score. Every time you apply, your credit is pulled and there is now a hit on your credit. Be selective of who you apply with.

One thing you do not have to worry about is your credit worthiness being based on race, sex, religion, national origin, or marital status. It is against US law to deny credit on these personal characteristics. Your age and salary may still be considered.

The higher your credit score the better. Scores that are in the 760-850 range typically will receive the lower interest rates because they are in a lower risk group. The lowest score you could have and still possibly be considered for loans or any other credit is in the 500-520 range. The interest rate will definitely be higher and you will not have as many options available to you. Anything below a 500 score will have little chance of approval without doing a secured loan.

Improving your credit score will take time, but is definitely worth it. Do improve the score you will need to check it at least every six months and stay on top of any activity found within it. However, having a score that is 760 or higher will get you best rates and options on loans. Your credit score has become an essential way to do business. It provides confidence to lenders that you will repay your debt and in return you receive the better offers and rates for your hard work.