Understanding Your Credit Score and Credit Report

Interpreting Your Credit Score and Understanding What Affects It

Are you in the market to buy a new house or car? Or are you stuck with an unexpected and costly household expense but don't have the funds to pay for it right now? Chances are that if you find yourself in either situation, you'll need a loan in the form of a credit card, auto loan, mortgage, or home equity line.

So, with this in mind, what affects your ability to get that loan?

The reality is that there are a number of factors that lenders consider when determining your credit worthiness - and most of it is summarized in your credit score.

So what is a good credit score?

There are 3 major credit reporting agencies: Equifax, Experian, and TransUnion. Their job is to assemble information about you and other potential borrowers' financial history. As a result of collecting all of this information about your financial life, each agency calculates your credit score and assembles a credit report. And most lenders will use at least one of these credit scores and reports to determine your credit worthiness when you apply for a loan.

The Equifax score ranges from 280 to 850, and can give you valuable insight into how lenders see you. Take action before you apply for the next loan and get your Equifax 3-in-1 Credit Report & FICO Score Now!

The FICO score is, however, the most common credit score, and it ranges from 300 - 850, with 850 being the best score. The FICO is a proprietary score that is basically a blend of the scores from the 3 aforementioned credit reporting agencies.

The mean, or average, FICO score in the U.S. is 711. Your FICO score takes a number of factors into consideration, including things like number of late payments (30 days or more past the due date), total amount of outstanding loans, your debt to income ratio, and much more.

If your FICO score is important to you, you can and at Equifax and keep tabs on what lenders know about you.

So now that you know your credit score, what can you do to improve it? The truth is that there is no guaranteed way to improve it in the short run, but there are several commonly used strategies.

  1. Pay down debt, and pay it on time. If you reduce your overall debt, your score will likely eventually improve.
  2. As a rule, don't close credit cards, even if you don't intend to use them in the near future. One of the factors that the credit reporting agencies look at is your available debt to incurred debt ratio. Or, how much credit you use in relation to the amount of credit you've been approved for. The lower this ratio, the better. So if you close a no-balance credit card, you are decreasing the denominator of the calculation and raising the ratio.
  3. Fix any mistakes uncovered when reading your credit report. If there are any payments that were falsely reported as late, or other similar mistakes dispute them with the credit agency.

What it boils down to is that by getting a handle on your credit score and credit report, you can improve your financial standing with lenders And doing so can help you get approved for lower mortgage and auto loan rates, which can in turn save you a fortune in the long run!

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