Sometimes your credit score can be as simple to understand as calculus. Unless you are wealthy, most people will need credit in order to purchase something expensive like a house or car. Knowing this, you should have a basic knowledge of your credit score and how it affects your purchasing power. Here are some things you should know about your credit score.
Knowing Your Credit Score
For a number that is so important in determining if you can buy something on credit, surprisingly few people know what their credit score is. Why do people not know their credit score? There are several reasons. Some people may not think it is important enough to understand. Others may not know how to obtain the number. Still others hesitate because they are worried that finding out their credit score will ding their score.
How do you obtain a credit score? A helpful feature of some credit cards is that they will include your credit score on your statement. Be mindful that there are three major credit bureaus, so the number they give you should be used a general score number.
Will checking your credit score ding your credit? Checking your credit can hurt your score if you are using mortgage lenders, but if you check using a credit scoring service, you can check it an unlimited amount of times.
What Your Credit Score Means
Credit scores are slightly different from one company to another. In general, the higher the score the better your credit is. Higher credit scores not only get you approved, but they help you get a better rate. Your credit score is a measure of how well you’ve managed your credit. A good credit score will be an indication of someone who pays on time, keeps their balances low and manages their credits accounts
How is Your Credit Score Calculated?
Payment History – Credit bureaus calculate several factors concerning how you pay your credit accounts. They will look at how often you have late payments, how many days, and when the last time you paid late on an account. Just by paying your bills on time, you can improve your score in a matter of months.
Duration – The longer you carry credit, the better it looks in the eyes of a creditor. Staying with a credit card company for a while shows that you have a good history of paying bills and are not always looking for another place to store your debt.
New Credit - When you apply for a large loan (like a new car or home), it is important not to make any other hard inquiries for new credit. A hard inquiry is when you apply for a credit card or some other form or credit. FICO starts to see patterns in certain periods of time and will generally lower your score when they see a lot of applications in a short time. Be aware that soft inquiries don’t count against you. A soft inquiry would be when you personally check your score, or if a preapproved card comes in the mail.
There are a lot of questions surrounding credit, especially when it comes to getting approved for a loan and your FICO score. The most important thing to remember is the better your credit, the better rate you will get on loans.