A good percentage of modern Americans own houses. Even more own cars. These are both large expenditures, and a very low number of people can afford to buy them outright. So, the thing to do is to get a loan, right? Well, the first step to getting the loan is making sure you have a good credit score.
However, before you go requesting your credit score you need to know some facts about the credit risk assessment companies. There are many companies out there that give credit reports, but three in particular are extremely important: Equifax, Experian and TransUnion. In accordance with federal law, these three companies are required to give you a free credit report once a year. There is a central website in which you can request your score, and you will get one credit score from each company, hence why you get three numbers.
So, what does your score represent, do you ask? Well, all payments you make towards loans and leases are compiled, and you are given a score based on how timely you are with paying them back. The report also includes information about where you live, who your employer is, if you’ve been sued or arrested, and if you’ve filed for bankruptcy. Companies that give out loans want to know that they’ll be getting their money back, and this is how they’ll know you’re capable of making timely payments until your debt is paid.
Okay, so now we know who gives us our score and what it represents. But where do the actual numbers on the score come from? Credit is determined with a scoring model, and by far the most prominent model is the FICO scoring model. The FICO models are the dominant credit scoring models in the market, and have been for over 50 years. The three nationwide credit risk assessment companies mentioned above all use the FICO model, and as such you really don’t need to know much about the other models. In the FICO model, the median American credit score is around 700. If you can stay above 700, you’re doing good! If you are never late with payments, you can expect to have a much higher score, but if you find yourself dropping lower, it’s time to attempt to repair your credit.
Repairing credit is never easy. But if your credit is already in a bad position, you really have no choice but to buckle down and get your finances in order. The bad news is that you can’t remove negative information on your credit report if it is true. You can attempt to dispute claims that you believe are false, but once the damage has been done, the only way that you can improve your credit is by overshadowing the bad with good. Make sure your expenses aren’t more than your income, pay back your debts in a timely manner, keep savings for emergency situations, and have a financial plan which you stick to under any circumstances.
All loans will look into your credit history. This will directly affect whether or not you are granted the loan and how much interest you will be charged. It is in every individual’s best interest to keep their credit as immaculate as possible. More often than not, bad credit ratings are simply the result of irresponsible decisions. Be sure to request your report on a regular basis, as this will tell you exactly what lenders are judging you on. As long as you have a solid plan that incorporates all of your normal payments and expenses, your credit should almost take care of itself!