An Introduction to Knowing Your Credit Score

    A credit score is a tool that lenders use to determine how likely you are to pay off the debt. It’s important to know where your credit report and score comes from, how it changes, who will look at your credit report, and how you can raise your credit score.

    The different credit reporting agencies

    There are three credit-reporting agencies that gather your financial history to determine your credit score: Equifax, TransUnion, and Experian.

    When you take out a loan, open a credit card, or finance a purchase (like a car) the lender or financial institution will report your payment history back to these three agencies. The credit reporting agencies, in turn, add up your data to determine your credit score.

    Who uses your credit score

    Banks, cell phone carriers, credit card companies, apartment complexes, and even employers can all look at your credit score to get more information about you. Credit card companies and other lenders will use it to determine how much they are willing to lend you and at what rate.

    Employers may use it to determine how trustworthy you are. Apartment management companies may run a credit check to determine how likely you are to pay rent on time. It’s important to note that there isn’t a cut off point for what is and isn’t a good credit score. Every institution has their own formula for what is and isn’t an acceptable credit score.

    What will change your credit score?

    Your credit score will change over time as you pay off debt, take on new debt, and develop a longer credit history. If you miss payments, your score will lower. Making payments on time consistently will raise your score.

    Raising your credit score is a lot harder than lowering it, so it’s important to avoid activity that will lower it in the first place. Don’t open too many credit cards, don’t miss payments, and don’t take on too much debt to keep your score higher.

    How to protect your identity and credit score

    Your credit score is tied to your social security number, so be careful how you give it out. By law, the three credit reporting agencies must provide you with a free credit report upon request once a year. It’s recommended to get one report from one agency every few months so you can monitor your credit report throughout the year.

    Check the report carefully for any inaccuracies like open accounts you’ve closed, delinquent payments that were made on time, or accounts you never opened. If you see a mistake, contact the credit-reporting agency right away to correct it.

    Understanding your credit score, where it comes from, who uses it, and how to improve it really is important. Check your credit reports regularly to fix mistakes and catch fraud early. Use credit cards wisely and make payments on time to keep your score high. Never forget that poor credit can keep you from purchasing the home you love.

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