Credit Scores

Filed under: General, Young Adults, Adults

     Your credit score is based on your credit history.  A good credit score is not a gift or a right:  it is earned over time as a reflection of your actions.  You can earn a bad credit score rather quickly but it takes time to establish a good score or raise a bad score.

     What good is a credit score?  Your credit score can either cost you money or save you money.  Most interest rates you pay on loans and credit cards will be determined by your credit score.  The lower your score the more you'll pay in interest.  The higher your score the less you'll pay in interest.  For instance, the rates on our signature loan vary from 11.90% annual percentage rate (a.p.r.) to 21.90% a.p.r.  If you borrow $1,000 for 12 months at 11.90% your payments would be $88.80 per month and your total payback would be $1,065.60 vs. the same loan at 21.90% your payments would be $93.54 for a total payback of $1,122.48.  That's an extra $56.88 you'd have to spend on just $1,000 for one year.  The difference between the paybacks on our lowest and highest rates on a $100,000 mortgage for 25 years is over $18,000. 

     Unfortunately, if your credit score is too low your loan may never be approved to buy a house or a car or anything else.

     A good first step in establishing or raising your credit score is to find out what is on your credit report.  Your credit report is made up of information submitted by all the companies that you pay money to provided that they report that information to the credit bureaus.  Major credit cards, most department store credit cards, and financial institutions are examples of companies that report to the credit bureaus monthly.  They report information such as your credit limit, your current balance, when the account was opened, the highest balance you've had with them, your payment history, and any amounts that have been sent to collection for failure to pay.   

     You can get a free copy of your credit bureau report once every twelve months from each of the three nationwide consumer credit reporting companies:  Equifax, Experian and TransUnion.  To receive your free credit report online, visit www.annualcreditreport.com.  To request your report by phone, call 877-322-8228.  You will receive your online report immediately and it takes about 15 days to receive your report if you request it by phone.  Review your report thoroughly to verify that all the information is accurate.  Use this opportunity to correct any reporting errors that may be evidence of identity theft, as well as concentrate on paying off any negative items that are bringing your score down.

     In addition to your free report, you have the option to find out what your credit score is for a fee.  Experian, for example, will provide your credit score along with your free credit report for a fee of $5.95.  It would be helpful to know what your score is particularly if you have negative items on your report that you want to clear up.  Then you could check your score again next year to monitor your progress.  Remember, it takes time to raise your score so you don't want to waste money checking it every couple of months. 

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