In my opinion, as early as junior high people should start exploring about credit scores, mortgage loans and other banking and financial transactions that will be important in their life at a later time. In fact, I think that the younger generations should be at least competent in understanding credit scores when they reach 20 years old, because they’ll struggle with banks and financial institutions, especially if they’ll attempt to acquire a mortgage loan for a real estate property or need financial assistance to start a business.
To help you figure things out before you ever get into the whole gamut of credit scores, here are 10 things to know about credit scores.
1. Credit Reports Are Different From Credit Scores
The first thing that you need to understand about credit scores is that you must not confuse it with your credit report, because they’re completely different things. Your credit report supplants the necessary information in order to bring your credit score up or take it down. The credit report includes many things that the credit report company like Equifax deems necessary to measure your credit score and it may include public records, how often you apply for credit, the details of your credit accounts and debt collection accounts.
2. Your Scores Are Based on 5 Core Factors
From the above mentioned we discussed credit scores and credit reports and how both are different from each other, yet important nonetheless. I also mentioned that your credit score is based on your credit report and from the credit report, there are 5 core factors that determine your credit scores. They are…
• payment history
• credit utilization
• average credit age
• account mix and
3. You Can Get Your Scores & Reports for Free
Fortunately, the United States government is subsidizing the credit reporting of every US citizen, and because of that you can request a copy of your credit report for absolutely free! The companies to call in order to get your copy are Equifax, Experian and TransUnion.
4. Checking Your Own Score Won’t Hurt It
Here’s another important detail that you need to watch out for, credit inquiries affect your scores in a less than accommodating way. Banks and other financial institution often does a hard inquiry on a lender’s credit score and that kind of inquiry will hurt your credit score; however, you being the recipient of the account will not. So it’s ok to check your score when you need to get a loan. You can get it from this site: Credit .com.
5. There Are Many Different Scores & There Are Different Credit Score Ranges, Too
There are currently 5 credit scoring models in circulation and they are namely Equifax Credit Score, TransUnion Score, Experian Score, Fico Score, Plus Score and Vantage Score. Most lending firms, banks and other financial institutions go to Fico Score in determining your credit score. You need to understand though that they may not always go to Fico Score to get your score, so it may be wise to learn the differences or the manner how these credit scoring companies utilize your financial transactions to compute your credit score. The good news is that Fico Score has various credit score calculating software that can work with the 3 main credit score companies (Equifax, TransUnion and Experian).
6. Your Credit Can Help You Spot Fraud
There are details on your credit report that pertains to your credit card transaction and, in fact, credit reporting companies have identity fraud departments that specifically deals with anomalous transactions. Usually they are the first one to spot these errors, then you’ll be notified when you call them and check on your score; you can then work with the police or the FBI to find the perpetrators, bring them to justice and clear your name off of these things and restore your credit score back to ideal levels. A fraudulent transaction done on your behalf could significantly lower your credit score, so it’s best to check your score regularly.
7. Your Credit Score Can Cost You Thousands Over a Lifetime
Don’t worry, this only happens when you get a low credit score. A low credit score will have terrible consequences on your financial obligations in life and loans and mortgages will cost thousands of dollars over a long period of time, because banks and lending firms will levy a much higher interest rate on your loan. Banks have a tendency to trust borrowers with low credit scores and this is why they do this.
8. Joint Accounts Affect Your Credit Scores, But There Aren’t Joint Scores
Sometimes you have very few choices available to you due to the current circumstances in your life. Then you figure out that your income alone won’t justify the loan amount that you need, so you have a friend, spouse or acquaintance to help you shoulder the payments in order to make it possible for you to get the loan amount. If either one of you miss the payment and your name was listed as the primary borrower, then that negative information will reflect on your credit report and eventually your credit score.
9. Negative Information Eventually Ages Off
While this is true, I strongly advise against having unpaid debts and other transactions that may lead to having negative information on your credit report as it will inevitably affect your credit score. Also it may take 7 years before any negative information on your credit report will wear off, so unless you’re willing to wait that long before applying for a new loan, then I suggest you avoid any filing any bankruptcy reports, missing a payment on prior loans and other financial transactions.
10. Credit Scores Aren’t the Only Things That Matter for Lending Decisions
Sometimes you get lucky even if you have bad or no credit score at all! That’s because there are lending firms and financial institutions that are actually giving people who have low credit scores a break. You’ll be happy to know that even if you’re just starting out in life and you don’t have a credit score yet, or you’ve recently been in a bad situation and it caused your credit score to go down; you can still borrow money from these companies:
• CashNet USA
• Realistic Loans.com
• Bad Credit Loans
• Personal Loans.com
So, it isn’t the end of the world even if things go a bit off in your financial life, because there is still hope in places where you least expected.