How to Check Credit Score (and Not Fall into Traps)

When people hear the word “credit score”, it often instills panic in them. However, very few people actually know exactly what it is. For example, there are lots of misconceptions when it comes around to understanding it and making sense of it. While yes, there are some basic fundamentals that you should know about credit score, but most of it is just as simple as making an action plan.

The basics

The credit score is basically a number that lets banks, credit card companies and other businesses (like automobile dealerships) know how likely you are to pay back any money that you borrow. As you can probably imagine, a higher score makes it easier to qualify for a loan or lower interest rate.

You might be surprised to learn that you have any different credit scores. There are a multiple reasons for that. Some of the common reasons that you may have multiple credit score is because:

  • Some lenders use different scores for different product. This is usually nothing but a marketing scheme but it does happen and it is important to make sure you are understanding what the different scores mean and refer to.
  • There are many different credit reporting sources and sometimes discrepancies may occur
  • Given the wide range of companies, there are also different formulas that may be used which may change your score from place to place.

So, it is possible that you have a different card score and different home loan score. And it is very possible that you get a third and different score online. For this reason, it is important to keep possibilities of shopping around open. FOr example, you may get different scores from different places and lower rates from different lenders. A good rule of thumb is to shop around a little but if you find yourself overwhelmed with too many options, it is best to choose one and negotiate.

Whats a good credit score?

The number itself ranges from 300-850 but different companies have different ranges that they might use. If you are wondering what your score means you should check with the company and see what range of numbers they deem good. Since it changes from company to company, it is best to be sure what your number means and what you can do to improve it, if needed.

How to check credit score

So credit scores come from information in your credit reports. There are credit report companies that take this information and report it to creditors. Examples of big creditors are Equifax, Experian and TransUnion.

Here is what information affects your credit score:

  • How close you are to your credit limit
  • How many accounts you have, and also, how old these accounts are
  • How long you have had these accounts
  • How often your payments are late
  • How much credit you have left
  • You can get a more detailed list

How to raise your score

If you find that your score is less than you would be okay with, then worry not! There are very many ways you can rebuild your credit. Here are some common ways you can use to rebuild your credit:

  1. Firstly, make sure you are always paying your bills on time. And it is important that you are doing this every time. A good alternative for this is to set up automatic payments so that you can have a more hands-off approach to making payments. This way, you are not likely to miss payments.
  2. Secondly, make sure that you are not maxing out your credit card or even going close the limit. Surprisingly, credit card companies are always checking how close you are to your credit card limit. To avoid looking irresponsible, it is important to stay away from even being at risk of maximizing. It would be nice not to spend more than 60-70% of your credit limit.
  3. The long term also matters. If you can prove that you have a long term history of paying your bills back on time, it will reflect positively on your credit report. If you can consistently show that you are paying your bills on time, it will show that you are responsible.
  4. Only use what you need. While this is good general life advice, it is especially important when you are trying to rebuild your credit. If there are loans you can avoid taking out, that is probably a better idea. Wait a bit until your credit is back up where you want it.
How to Check Credit Score.

There are few steps you should always take when you receive your credit report as part of best practices in how to check credit score.

How to fix discrepancies

The first step is to make sure that your credit report is always correct. More than just your score, the report matter as well. For this reason, if there is something wrong with your credit report it could adversely affect your score. Make sure you are regularly checking your report as well.

We would recommend getting a free credit report check from each of these three companies (Equifax, Experian and Transunion) every 12 months so you can correctly monitor and make changes as needed. Check annualcreditreport.com to make sure everything looks up to standard.

When you receive the report, make sure you check for:

  • Any general mistakes, such as mistakes in name, address, etc.
  • Make sure all accounts are actually yours (including any loans, like auto loans)
  • All reports are accurately listed (and none say that you were late when you were actually on time)
  • Making sure nothing appears more than once
  • Accounts that should be closed but were listed as open

If you do notice a discrepancy:

  • If you find something that was wrong, there are two people you should contact. Reach out to the credit reporting company and creditor that provided the information. Explain what is wrong and why and additionally attach the document which led you to believe so. Even if you are unsure, go ahead and file a claim to get it sorted sooner rather than later. Also, usually credit reports have detailed instructions on what to do if something is wrong.

 

 

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