What your credit score means

Credit scores have a huge impact on what you pay for things, where you live, and what job you hold. In return, all of these things can influence what your score is. A credit score is supposed to show your ability and willingness to pay the debts that you incur. A bad or even fair score can increase your insurance costs, limit who will hire you, and cause you to pay extra money in interest.

Consumers are rated at the three major credit bureaus: Exprerian, Transunion and Equifax. Each company uses their own algorithm and may get reports from different sources, so it’s important to check your credit score at all three as the score may be different. The Fair Credit Reporting Act requires each bureau to make a copy of your credit report available to you for free at your request once every 12 months. There is an official website at annualcreditreport.com, you can call 1-877-322-8228, or you can complete and mail in an Annual Credit Report Request Form. The free credit reports won’t give you scores (you have to pay for that) but will point out any problems that might indicate a poor score.

What your credit score means:

Anything over 750 is a really good credit score. Although it is possible to get a higher score, there’s no real reason to work at it. Lenders know you are a good risk, and will give you good loans at good terms.

Scores between 700-750 represent good credit, with a minor glitch or two in your past. Maybe you have a late payment, but it was only 30 days late. Maybe you are carrying more credit card debt than you strictly should. You will generally be able to get the loans you want, but maybe not at the best possible interest rate. You’ll be able to get insurance, but again, you may pay a little more. It probably will not affect your employment choices.

Scores between 650-700 means you have more issues, or too much debt. Lenders will look at why your credit score isn’t so hot, and may require larger down payments or more collateral for you to get the loans you want. Insurance rates will be higher and at this may affect job prospects if you are looking in an area that requires financial responsibility.

Scores between 600-650 mean that you have had multiple serious credit issues in the past. You may have had accounts in collections, or even a bankruptcy. Any loans you get will require significant down payments or collateral, and will only be offered at high interest rates. Insurance rates will go up. More employers will be reluctant to hire you as they may fear that you would be a fraud or theft risk.

Scores below 600 means that you have shown yourself to be a serious credit risk. You likely have collections, and maybe repossessions or bankruptcy in your file. For the most part, only predatory lenders will give you credit. Insurance companies may refuse you entirely, and job prospects will be limited.

Things that can really affect your score

The first thing you can do to raise or keep your credit score up is pay your bills on time. For the most part, you are not going to have bad credit unless you have some seriously delinquent accounts in your file. Missing credit card payments can ding your score by a lot of points (and may raise your rates), but even missing payments to creditors that don’t regularly report your credit can hurt your score if the bill goes to a collection account.

Another of the most important factors in determining your credit limit is “How much credit do you have, relative to what you use?” It’s good to have credit cards with high limits but low balances, which show that credit card companies trust you to borrow more money than you borrow. If you are maxing out your card (or close to it) but paying off your bill, consider paying more frequently. If you have cards you don’t use, you may want to keep them open so that your available credit to used credit ratio stays high.

That said, you don’t want to open a bunch of credit cards at one time. Too many credit card applications at one time can drop your score, because each self-initiated (hard) enquiry drops your credit score a few points, at least temporarily. If you are shopping for a mortgage or a car, you have a 2 week window that will count as one credit enquiry, but you do want to limit all your applications to a set period of time. Unfortunately, shopping for credit cards doesn’t work the same way.

Remember, credit reports can report 7 year’s worth of data (10 for bankruptcies. While this is a long time to carry negative information, lenders do look at the dates of negative information, and if you’ve shown good credit behavior for the last few years, they may overlook some youthful indiscretions. While bad credit can cause you problems, you can change your score for the better with time and careful attention.

References and Further Reading

5 Common Credit Score Killers-from Credit.com via Yahoo Finance

5 uncommon ways to raise your credit score-from Bankrate.com

Free Credit Reports-from the Federal Trade Commission

The Long, Twisted History of Your Credit Score-From Time

What Is a Good Credit Score – Understanding Credit Ratings & Ranges-from MoneyCrashers

What Is a Hard Inquiry?-from Credit.com

8/9/15-Updated to indicate that the free credit reports at the government web site do not give credit scores.

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