A credit score is an important aspect of a personal financial profile. The score is a reflection of a person’s use of credit in the past and is used to determine creditworthiness of an individual by lenders, banks, and credit card companies. It can also be used by insurance companies and even employers to gauge your responsibility.
Credit Score Calculations
Every individual with a credit history has a right to receive a free annual copy of their credit report from the three credit reporting bureaus: Experian, Equifax, and TransUnion. Each agency will offer a credit score that differs from the other two companies. The score is calculated using percentages of individual factors contained in your credit report such as length of credit history, payment history, types of credit, and amount of credit. These score calculations are known as FICO scores because they were named after the Fair Isaac and Company, the developers of the score calculating software. The FICO score is the most widely used by lenders and consumer scores will increase or decrease depending on the activity on one’s credit report.
An Extra Step
Checking your credit score is a slightly different process than ordering your credit report. In order to get a copy of a consumer’s credit score, a fee (generally $15) must be paid in order to have the score included on the report. You can contact any or all of the three credit reports online, by telephone, or via mail to request a copy of your credit score. Consumers are often lead to believe there are ways to get free access to credit scores but nothing is technically free and it usually involves a fee-based membership to get a ‘free’ copy of a credit score.
- Equifax www.equifax.com
- Experian www.experian.com
- TransUnion www.transunion.com
Credit Scores Matter
The FICO scores range from 300 to 800. The highest score reflects the better credit history. Interest rates on loans and lending decisions will be based on how high or low a credit score is, as well as other factors. Landlords and potential employers can even use the credit score of an individual to determine their potential as tenants or employees. Insurance companies are another industry that have begun using credit scores to determine risk and set premium rates. Errors included on your credit report can cause your credit score to drop. To be sure the most accurate picture of a financial portfolio is given, a consumer should stay on top of their credit report information to ensure their score is as high as it possibly can be.
Consumers should order their credit report and score at least annually, if not more often, to be sure no incidents of fraud, error, or identity theft is negatively impacting a credit score. Consumers can report such incidents to the individual credit bureaus for investigation. Any unverified information can be corrected or removed from the credit report and can positively affect the overall credit score of the consumer.
Credit Score Scams
There is an increase in scams related to credit scores. Many agencies are claiming they can increase a consumer’s credit score overnight for a high fee. The reality is a consumer can improve their own credit score by paying bills on time, maintaining a long credit history, and having the right kind of open credit accounts. There is no ‘quick-fix’ for credit scores. Only time and good credit management can bring a low credit score up. Checking a credit score regularly can help consumers keep up with their own financial picture without the need for a third-party agency’s expensive involvement.
Where to Get Your Credit Score
If you want a more complete look at your credit score, you will have to pay for it. The major credit bureaus offer packages that include credit scores and credit reports from all of the bureaus. This can cost between $40 and $70, depending on which products you purchase. You can, however, usually get just a score from one of the bureaus for between $7.95 and $10.95. You can also go to MyFICO.com and purchase your score. MyFICO offers the score from Fair Isaac Co. Most lenders use a formula based on the FICO score to create their own scores.
Other paid services include CreditReport.com or Equifax Score Power. These companies will give you a free trial initially, but then want to sin up to a monthly subscription. You can must get your score and cancel the service. Just don’t do it too often.