From ATM PINs to Social Security numbers, modern life is all about digits. Your credit score is an extremely important one of these numbers; it can impact virtually every part of your financial life. Although dealing with your credit score can seem daunting, you can (and should) understand and check your credit score on a regular basis.
How is a credit score determined?
Your credit score is a number between 300 and 850: the higher the score, the more trustworthy you appear to lenders. The three major credit bureaus, Experian, Equifax, and TransUnion, each assign you a score based on a variety of factors; this number is called a FICO or BEACON score. To get this score, each credit bureau looks at financial data including your payment history, the type of credit you use, how much debt you have, how long you’ve been using credit, and how much of your credit is new. This data is weighted according to its importance — for example, your debt is a larger factor than how much new credit you have. Because each credit bureau could have different information in its files, your credit score isn’t necessarily the same with each one.
How can you check your credit score?
Thanks to the Fair Credit Reporting Act (FCRA), every American is entitled to check their credit reports with the three bureaus once every 12 months. The only officially sanctioned website to provide this service is annualcreditreport.com, but if you don’t wish to check your credit score report online, they also offer a toll-free number and mailing service. Keep in mind that using annualcreditreport.com will only give you your credit report for free; if you’d like your score, you’ll need to pay a small fee. You can also obtain your score through the myFICO website or each of the credit bureau’s websites, also for a fee. Beware of websites that offer to check your credit score for free. Often, these websites are only offering a free trial period of their service, and by signing up, you’ll be entering into a service with recurring monthly fees.
What affect does checking your score have on your credit?
Contrary to popular belief, checking your credit score doesn’t cause your score to go down. This is because there are two types of credit checks: hard and soft. When you check your score yourself, you are performing a soft credit check, which is a check done merely for informational purposes. Because you aren’t applying to take on more debt, which is what a hard credit check can indicate, the credit bureaus don’t perceive your information inquiry as added risk.
Why should you check your credit score?
Your credit score determines many things, including whether you are eligible for loans and what type of interest rates you’ll be offered. It is therefore in your best interests to ensure that the information determining your credit score is accurate. Credit bureaus make mistakes from time to time, so you should look at both your report and score on at least a yearly basis. Doing so will also help you catch any fraudulent activity associated with your financial life. If anyone has, for example, opened a credit card in your name, you’ll find it on your credit report.
What can you do if your credit report is inaccurate?
The FCRA provides you protection by ensuring that both the credit bureaus and the institutions that report to them (such as banks or credit card companies) must correct errors contained on your credit report. Although this can be a lengthy process, you can start by informing the credit bureau in writing about the error. They must then investigate your claim. You should also provide any documentation regarding the error. For more information, you can visit the Federal Trade Commission’s website, which offers detailed information about disputes and your rights under the FCRA.
Arm yourself with information, and you can stay on top of your credit. And if you’ve checked your credit score and found it lower than your liking, don’t worry. Through regular payments and wise credit usage, you can raise your score and reap the benefits that come with having good credit.
Do you have any experiences to share about checking your credit score? Let us know in the comments below!