01 Jul What You Should Know About Your Credit Score
Your credit score impacts various parts of your life. It can help you land a new job or get a mortgage. It’s the key to getting a new car and renting an apartment as well. Because your credit score is so important, you need to know as much about it as possible. That way, you will have a much better idea of how the system works and what you need to do to make it work for you.
It’s Comprised of Five Factors
Five factors go into your credit score, and each factor has a different weight. Your payment history is the most important factor and makes up 35 percent of your score. The amount you owe makes up 30 percent, and the length of your credit history comprises 15 percent of the score. Then, you have the types of credit used and new credit, including inquiries. These two items make up 10 percent each. You need to work on each component to improve your score, but your score will go up more quickly when you put most of your focus on the payment history and the amount you owe.
Different Situations Call for Different Scores
The impact your credit score has depends on what you’re trying to do. Do you want to get a mortgage loan? If so, you will need a score of at least 760 out of 850 to get the best rate. What if you want to get a car loan? If so, you will need to have a FICO score of around 720 to get the best rate. If you’re trying to get a job, a credit score in the 600s should do. It’s all a matter of what you want to accomplish.
Your Credit Score is Just Part of the Picture
If you have bad credit or don’t have any credit at all, that doesn’t necessarily mean you can’t get a loan. Alternative lenders are willing to look at other factors, such as debt-to-income ratio and savings, when determining if someone is eligible for credit.
Your credit score could be 720 today and 700 tomorrow. It’s constantly changing based on new information gathered by the credit bureaus. That is why it’s important to check your score before you apply for credit. For instance, if you’re about to get a home loan, check your score and make sure it’s solid so you can get the rate that you want. If you have some work to do, put that work in so you can get a better rate.
Checking Your Score Doesn’t Impact It
People are often afraid to check their credit scores because they think it damages their credit, but that isn’t true. Your score is only impacted during hard inquiries. These inquiries happen when a lender pulls your credit to approve or deny your application. Even that impact is small and short lived.
Your Credit Score Can Cost You
While you can pull your credit score for free, it can end up costing you a bundle in the long run. Low credit scores mean higher interest rates. If you have a bad credit score, you can end up spending thousands of dollars more than someone with good credit during your lifetime. That alone is a good reason to fix your credit score.
Your credit score is incredibly important, but you do have control. You’re in control of how you use your credit, and you’re also in control of pulling your reports and checking for errors. Don’t let the credit bureaus take control. You have the power to have good credit.