What to Know About Your Credit

January 11th, 2021 by
What to know about your credit

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If you are taking out a loan or a credit card, you may have seen your credit score, but what does it actually mean? What does the number system have to do with borrowing money?  

Everyone has a FICO credit score, which helps lenders determine if you are a good candidate to loan money or open a credit card account. It’s kind of like a financial resume.

Related: What is Credit Card Insurance Protection?

Your FICO credit score is a three-digit number starting from 300, consumer credit reporting agency Experian says. The higher the number, the better your score and the more likely you are to get accepted for a line of credit. This is not a fixed number and can change frequently. 

Experian explains which factors can impact a credit score:

  • The length of your credit history.  If you are a new borrower with limited borrowing history, your score may likely be lower than someone with a few years’ of borrowing behind them.
  • How much of your current credit you are utilizing. If you are at your credit card’s max amount of borrowing, this can have an effect on your credit score.
  • If you pay your repayments on time. If you miss any payments, this will affect your score and the decision of lenders to give you a line of credit in the future.

The best way to find out your credit report and score is to request your credit report from one of the three consumer credit reporting agencies, Equifax, Experian, or TransUnion. And your credit score can be requested from MyFICO. 

Related: What to Know About Annual Percentage Rates (APR)

Confirm your details are correct on your credit report. Report any anomalies and check to make sure everything is up to date. This can have a positive effect on your report and your help to increase your credit score, Experian adds.

Also Read: How to Help Prevent Errors on a Credit Report

Credit agencies will report credit scores in different ways and have different scores, but the main scoring structure stays the same. Having a lower score doesn’t mean that you a lender won’t let you borrow money, it could mean having a higher APR on your initial loan at the time of lending.

 

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Posted in Financial Planning