Stop worrying about your credit score. You can now check your credit report free of charge and gauge the possibility of getting a loan. You can even download the report.
There are endless misconceptions about credit scores. A lot of people don’t know about the FACT Act, which came into effect since 2003. FACT is the abbreviation of Fair and Accurate Credit Transaction. It enables you to check your credits once in a year.
Getting your score
FACT didn’t allow you to get the score until recently. However, it’s fully free now; this saves you and countless others like you from doling out extra money to credit reporting firms and independent agents. What was even worse is setting up a trial account sponsored by a credit monitoring bureau; the account renews automatically unless you proactively close it at the end of the trial period.
Before diving deeper, I would like you to understand the importance of your credit report. An impressive credit report informs a lender that he could rely on you as a borrower. The lender would look for
- Credit history
- Credit score
Your credit history showcases your previous and existing credit accounts, lists all the occasions when you or a lending agency wanted access to the report and when collection agencies obtained your accounts. Your financial journey including bankruptcies and foreclosures will be there in the report.
Your credit score is totally a numbers game. The entire score is 100% and consists of payment history, amounts owed, length of credit history, how many types of credit in use, and account inquiries. The first three segments are 35%, 30% and 15% respectively. Credit in use and account inquiries are 10% each.
Accessing your report
The process is simple, and involves hardly any technicality. There are three credit reporting services, from which you can request a copy of your credit report. The agencies are Equifax, Experian and TransUnion. I suggest you request a credit report from all three agencies so you could tally them and spot errors easily.
Credit score authenticity
Remember, you are getting the consumer version of the credit score. There’s a business version, which involves the use of intricate formulas. The leading agencies that offer credit scores for enterprises and consumers are Fair Isaac Corp and VantageScore.
The first one is widely recognized in the lending vertical as over 90% lending decisions are made keeping credit scoring metrics by FICO. As for VantageScore, it’s the product of the three credit assigning services, mentioned above.
Credit score structure
Credit scores are known as FICO scores because FICO issues you the scores. The scores range between 300 and 850. It’s like the GPA. Just as a low GPA score minimizes your odds of enrolling yourself in one of the top graduate schools, a low credit score makes it difficult for you to get a loan and best interest in it.
Below you can find what each credit score range implies:
❏ 300-580: It’s a poor score. You’ll probably be denied a loan, and even if you get it, the interest rate will be nightmarish.
❏ 580-650: It’s bad but better than poor. You qualify for a loan, but the terms and the interest rate will be far below your expectations.
❏ 650-710: You get approval easily but have problems getting the platinum status.
❏ 710-760: It’s a really impressive score. You’ll be treated like a catch by the banks, and the offers around you will be lucrative.
❏ 760-800: Congratulations! You are the first bencher. Your credits are excellent, which means you can get loans from the top agencies at most favorable interest rates.
As you can see, it’s almost like an exam, except the consequences are financial, not academical.
The fine print
Contrary to what many people believe, checking your credit scores doesn’t do any harm to credit rating. If your provider grants you free access, then you can check your credit scores whenever you want to. That being said, checking it once in every month is sufficient because this is the time it takes for your credit files to gather new data.
The truth is when you check your own credit score, you generate a soft inquiry, which doesn’t go against you. But when you request your lender to pull it for you, you generate a hard inquiry, which might lower your score. So check your report yourself.
Benefits of checking
There are several benefits of checking your credit score. The biggest of them is you can monitor your personal credit file, and get alerted whenever there’s an item against you.
What do you think of credit scores? Will you check your score? What do you expect to see in your credit report? Let us know in comment section.
Tina Roth is a personal finance blogger and content expert at ProFinanceBlog.com. Her finance blog covers advices and tips on investment, insurance, budget, personal finance and many more. You can reach her at Facebook, Twitter,Google+.