Moneymentals | Our Blog


How Do I Check My Credit Score and What Does It Mean?

 

credithistoryToday’s economy of convenience often involves two-for-one offers, package deals and add-ons. You can almost always get French fries with your order! Along these lines, you might assume you’ll receive your credit score with your credit report—but not so.

This blog is the follow-up to How Do I Check My Credit Report? Your credit report is different from your credit score. Your report lists your payment history with individual creditors. Your score reflects how creditworthy you are based on that track record and other factors.

How to Get Your Credit Score

Your credit report is free, but there’s a small fee for your credit score. When you receive your credit report, you’ll see an offer on the report to purchase your credit score for approximately $10 or less. Simply respond to that offer to get your score.

The three national bureaus that provide credit reports have different databases, so each one could give you a slightly different score. You can also get your credit score from online sources, some of which are free. Be careful, because not all credit scores are created equal.

Different Kinds of Credit Scores

There are several scoring models and more than one type of credit score.

Scoring models use complex mathematical calculations and analytics to incorporate information from your credit report into a score. The most popular provides FICO® Scores. This model was developed by the FICO Company, which also offers a free credit score in connection with a trial offer. Using your credit report information, FICO Scores are generated by evaluating whether or not payments were on time, how long your credit history is, how much credit you use compared to your available credit, the kinds of credit you’ve used and recent credit searches.

The type of credit score you receive depends on the kind of credit you’re applying for. The most common is the generic FICO Score, which ranges from 300 to 850. Other FICO Scores cover mortgages, personal finance, car loans and more. They can have different ranges. While 90% of lenders use FICO Scores, other types of scores are available. Some are free online.

Mortgages are essentially secured loans because they’re secured by a home. Therefore, a mortgage lender typically has a different FICO Score for you than a lender evaluating your consumer debt. However, the two types of scores coincide to a degree. If your generic score is excellent, your mortgage score will fall high on the range as well. Your generic score should give you a pretty good idea of your overall creditworthiness, even though the score will likely differ somewhat from the one your mortgage lender gets.

What Your Credit Score Means

Lending companies—whether they offer credit cards, specific services, payment plans or loans—want to minimize risk. They seek borrowers who are likely to make consistent, on-time payments. Your credit score is a measure of your potential for risk and your creditworthiness. The higher your score, the more trustworthy you are in a creditor’s eyes. On the generic FICO Score scale, a good score would be in the mid-600s or higher—the higher the better. If you’re hoping for the best mortgage rates, your credit score should be well over 700.

Credit scores affect what companies offer you credit, whether or not you’ll receive it and how much. Your score carries the biggest impact when it comes to mortgages, particularly your qualifying amount and the rate.

Reasons for Checking Your Score

It’s unnecessary to examine your credit score on a regular basis. However, if you have no idea what it is, check it to see what range it’s in. If you’re applying for a mortgage, your mortgage broker will get your credit report and credit score for you. With clean credit, both your general score and mortgage score will be high.

Checking your score helps if you haven’t been very clean financially and need to improve it to get a mortgage or build creditworthiness. Detailed strategies are beyond the scope of blog, but there’s plenty of information available on what affects your score and techniques for improving it.

What to Do

Manage your credit reasonably, but don’t structure your life around how it impacts your credit score. If you follow good Wealth Gathering principles—including paying bills on time and not getting deep into debt—you’ll have a fine credit score. The best way to start fixing a poor credit score is to start doing things right!

Regularly examine your credit report, but check your score only if you need it. For more information, click the Frequently Asked Questions tab at AnnualCreditReport.com.