You might know the score your favorite football team racked up in it’s last game or ditto your favorite basketball team. You might even know how many goals were scored in a soccer game yesterday. But do you know a score that’s even more important than these?
It’s your credit score. And it plays a much more important part in your life than does any football, basketball or soccer score.
What is a credit score?
Your credit score is a three-digit number that’s created by the three credit reporting bureaus – TransUnion, Experian and Equifax. It’s crucial to your financial well being because it’s the first thing a lender will look at when you ask for any type of credit. It also can affect your ability to rent an apartment as well as the interest you pay on loans and even your insurance premiums.
How your score is computed
It begins with your credit reports as amassed by the three credit reporting agencies. Each of the three gathers information from everywhere you have credit or applied for credit. The three bureaus convert your credit reports into your credit score using proprietary formulas or algorithms. While these formulas are based on your FICO score, each bureau calculates its own score.
Three different scores
Each of the three bureaus has its own formula for computing your credit score so you can have three different credit scores although they should be similar to one another. In fact, if you were to see all three of your credit scores and find a wild difference between them, you should look into this because there may be a serious error in one of your reports.
Good and bad credit scores
Credit scores range from a low of 300 to a high of 850. The median score of all Americans is 723. The answer to “what is a good credit score?” is 760 or better.
The impact your credit score has on your interest charges
Your credit score will even have an impact on the interest rate you pay on a mortgage and other kinds of credit. If your score is 760 to 850 you might get a loan at 4.76%, while someone with a score of 620 to 639 might pay 6.2%.
How to keep track of your credit score
Your credit score doesn’t actually exist until someone, including you, asks for it. This is because it’s a fluid number that can change from day to day – depending on what happens in your credit report. You can get your score at the website, www.myfico.com. It will cost $19.95 unless you register for a free trial of its Score Watch service in which case it will be free.
The three credit reporting agencies
It’s also possible to get your credit score from the three credit reporting bureaus. You may be able to get it free if you’re willing to jump through some hoops. However, none of these will be your true FICO score because as noted above, each agency has its own formula for generating your score.
Monitor your credit reports
You can get your credit reports free once a year by contacting TransUnion, Experian and Equifax and requesting it. Or you can get them all at once from the site, www.freeannualcreditreport.com. However, many people choose to order their reports one at a time, every four months, as a way to continually monitor their credit.
Whichever you choose
Whether you choose to get your three credit reports all at once or one at a time over the year, it’s important that you get them. The three credit bureaus process an incredible amount of information every day and when that much information is being processed, there can be errors made. There might be a big one in your credit report that’s having a serious impact on your credit score but you would never know this unless you regularly get and review your reports.