725, 650, 840 — in the world of credit, these numbers can make or break your ability to get the loan and/or interest rate you desire. What’s your credit score, and how can it help—or hurt—you?
Your credit score is more than just a number. It is a number that you cannot shake — it follows you everywhere, but fortunately it’s one that you can improve. This adds up to real money. Maybe your score is okay, but by improving it you could potentially pay less in interest and even insurance. This means money back in your pocket.
What Your Credit Score Means
Your score paints a picture for lenders of your financial past and future. When you apply for a loan, be it for a car, house, or credit card, lenders look at your credit score to measure what kind of interest rate to charge you, making it very important to shoot for the highest credit score possible. Your interest rate is determined based on where you fall on the credit score scale—anywhere from 300 to 850:
- A—760 and above
- 599 and below
A score of 760 or above is the best and will usually earn you a lower interest rate. A score of 599 or below reflects the worst credit; therefore, those with low scores usually receive the highest interest rates available.
Checking Your Credit
If you don’t know where you fall or have not checked your credit score recently, check it! In fact, experts recommend that you get and review your credit report annually to keep tabs on your credit score and make sure no one has opened any accounts using your personal information without your knowledge.
Despite the catchy commercials for www.freecreditreport.com, there is only one free credit report source, and it was made available by Congress — www.annualcreditreport.com. The Fair Credit Reporting Act allows you to access your credit report from each of the following national credit reporting companies annually:
Improving Your Score
Improving your credit score is a lot like weight loss—it just doesn’t happen overnight. However, by making smart decisions and staying on track, you may be surprised to see results sooner than you think. The scoring formula gives more weight to recent activity. So, even six months of making smart financial decisions will have an effect on your score. These simple guidelines will get you headed in the right direction:
- Set up payment reminders.
- Pay all bills on time.
- Keep credit card balances low; or better yet, pay them off each month.
- Take on new credit only when you really need it.
- Reduce the amount of debt you owe.
Credit scores gauge your borrowing history, and a good score has its advantages. Managing credit responsibly over time is the key to success and scores that will serve you well in the world of lending.
The information and any statistical data contained herein is not intended to be investment advice. Contact a financial advisor for specific advice for your individual situation.