How to check your credit score
- A credit score is a number between 350 and 800 that represents your creditworthiness.
- FICO and VantageScore credit scores consider factors such as payment history and credit mix.
- Consumers can get their credit score for free or include it as part of a paid service.
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Credit scores play a crucial role in consumers’ lives. They figure prominently in everything from qualifying for a mortgage or credit card to the rate you pay on your
. Knowing where to find your credit score and understanding what it means are key to managing your finances effectively.
What is a credit score?
A credit score is a number between 300 and 850 that predicts the likelihood of you paying off a debt on time. Consumer credit reporting agencies like Experian, Equifax, and TransUnion look at a range of factors, including bill payment history, current outstanding loans, and the amount of available credit used to determine credit scores. The two most common credit scores consumers are likely to encounter are FICO and VantageScore.
- The FICO score is a three-digit number that represents your creditworthiness, or the likelihood that you will repay a loan, as well as the size and repayment term of the loans available to you. It was developed by what was then known as the Fair Isaac Corporation 30 years ago.
- VantageScore is a similar three-digit number used to measure an individual’s creditworthiness. It was launched in 2006 by three of the largest consumer credit rating agencies, Experian, Equifax and TransUnion.
How to check your credit score for free
Knowing your credit score is important because it will determine the amount and terms of loans you can get. Having good credit will most likely make it easier to take out a loan, while bad credit can make it difficult, if not impossible, to do so. The number is updated regularly and may go up or down, depending on various factors such as payment history and the number of loans you have. It is therefore useful to have an idea of what this figure is.
In the past, it was common for consumers to pay a fee to access their credit scores from one of the credit bureaus. Today, however, there are many free options available. Most credit card companies will provide your score on your monthly statement or whenever you check your account online. There are also a number of websites, like Credit Karma, that offer free credit scores when you sign up for their services.
“You can find free credit scores everywhere today,” says Matt Schulz, chief industry analyst at CompareCards by LendingTree, who notes that knowing your credit score can remove much of the mystery from the lending process. .
“Finding a free credit score has never been easier than it is now, and that’s a good thing for consumers,” Schulz says. LendingTree, for example, provides regular access to your TransUnion credit report and VantageScore, adds Shulz.
Yet companies can and some still charge fees, as they are entitled to under the Fair Credit Reporting Act (FCRA). FICO offers tiered services that give users their Experian score along with a range of other services such as credit monitoring and identity theft insurance for $19.95 per month. A user can get scores from Experian, Equifax, and TransUnion for $29.95 per month.
How are credit scores calculated?
Now that you know how to get your credit score for free, what exactly are the factors that go into its calculation? It’s slightly different depending on whether you’re looking at a FICO score or a VantageScore. Let’s break it down.
- Payment history (35%): The most important factor in your FICO score is whether you repaid previous loans on time. It helps lenders determine the level of risk they will take when extending credit.
- Amounts due (30%): While having a lot of unpaid debt isn’t necessarily a bad thing, it shows how much available credit you’re using. Lenders can look at this and determine if you are overcharged or not.
- Length of credit history (15%): A longer credit history is a plus, but not a requirement for a good score.
- Composition of credit (10%): Your FICO score takes into account your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgages.
- New credit (10%): The score looks at recent credit accounts and the time in which they are opened, as they may represent a higher risk.
VantageScore uses slightly different factors, which are weighted differently to determine the overall score. The most recent iteration of the scoring model uses “trend data,” which looks at your credit usage over time to help determine your score. The breakdown of contributing factors is as follows.
- Payment history (41%)
- Usage (20%)
- Age/Mix (20%)
- New credit (11%)
- Balance (6%)
- Credit available (2%)
While there are different formulas for determining your credit, Schulz says it really all boils down to three things: “Pay your bills on time every time, keep your balances low, and don’t ask for too much credit too often. Repeat these three things and one more and your credit will probably be just fine.”
What is a good credit rating?
While the range of credit scores goes from 300 to 850 for FICO and Vantage, there are slight variations in what each stands for.
In April of last year, the average FICO score was 716 and 67% of US consumers had a good or better FICO score.
The average VantageScore in the United States is 695, with 61% of Americans scoring Fair or better.
Does checking my credit score lower it?
A common misconception is that checking your credit score will lower it. This is considered a “soft” check and has no impact on the score itself. Other instances that are considered informal checks include when an employer performs a credit check with your permission or when a lender checks in to pre-approve or pre-qualify an offer.
A “rigorous” check is performed by a potential lender when they review your credit history. These checks can have a negative impact. This is part of the “new credit” factor that contributes to your credit score.
Credit Score vs Credit Report
If you think of a credit score as the score lenders use to determine your creditworthiness, think of the credit report as all the “work” that goes into that score.
Your credit report details your credit activity. It lists current and historical accounts, credit limits, balances, payment histories, account opening dates, and public records such as liens, foreclosures, bankruptcies, and civil judgments. It does not include your credit score. Consumers are entitled by law to a free report every 12 months from each of the three main reporting companies. They can be requested at www.annualcreditreport.com.
Keeping a close eye on your credit score and credit reports, whether you get them for free or pay for them, is essential to staying on a solid financial footing. By monitoring both, you can take steps to correct small problems before they become something that can hamper your ability to take out loans. According to Kendall Clayborne, Certified Financial Planner at online bank SoFi, they can provide valuable insight into factors that could lower your score.
“From there, you can formulate a plan for what will have the greatest impact for you personally,” says Clayborne.