Your credit score is a key component of really any financing decision. If you are looking to purchase a home, lease a car, secure a personal loan, or even rent an apartment, your credit score will be factored into the equation to determine your eligibility.
Understanding how to check your credit score, and how to improve your overall FICO score, is a vital piece to personal financial planning.
What Is a Credit Score?
What exactly is a credit score and what’s a good FICO score? One’s credit score is a numeric value, between 300 and 850, that indicates how likely one is to pay bills and debt on time.
The credit score is impacted by numerous factors, such as length of credit, type of credit, amount of credit, and previous payment history. The more you demonstrate the ability to pay all bills, on time and in full, the higher your credit score will be.
There are generally 5 categories your credit score can fall into:
- The bad credit score category, which when the score is between 300 and 579
- The fair credit score category, which is between 580 and 669
- The good credit score category, which is between 670 and 739
- The very good credit score category, which is between 740 and 799
- The exceptional credit score category, which is between 800 and 850
How Do Credit Scores Work?
It’s important to note, a credit score is a moving variable. If your score is high today, it can decrease if you start falling behind on bills.
If your score is bad today, it can be increased by paying off debt and paying all your bills on time.
What Are the 5 C’s of Credit?
Credit is influenced through 5 different C’s, often referred to as the 5 C’s of one’s credit score. These 5 C’s are all factored into the equation to determine one’s credit score. They are as follows:
- Character: Character is one’s credit history and reputation. For example, if you have a history of not paying off debt, a lender will look at that as a negative characteristic, and it will reduce your credit score.
- Capacity: Capacity is a measurement that determines how likely a borrower is able to pay off a new loan by comparing existing loans against one’s income. For example, if you make $150,000 a year, and have $30,000 in recurring debt payments each year, you would have less capacity than someone making $250,000 a year with $30,000 in annual debt payments.
- Collateral: Collateral is what a lender can take if the debt is not repaid. For instance, a mortgage has the physical house as collateral. If someone falls behind on their mortgage payments, a bank has the right to repossess the property.
- Capital: Capital is how much money a borrower puts towards a specific loan. For instance, if one is purchasing a home and they put a lot of money down, the bank feels like the individual has ‘skin in the game’ and the chances of defaulting on the loan are decreased.
- Condition: The condition of credit is also referred to as the t&c, or terms and conditions. Essentially, this metric looks at the conditions of each borrowed debt, including the amount borrowed and interest rate.
What is the Fastest Way to Build Credit?
It’s a lot easier to build good credit from the start instead of trying to repair it at a later time. A common misconception is people believe the only way to build credit is to have debt.
That couldn’t be further from the truth. Sure, having a credit card is a great way to build credit, but you don’t, and shouldn’t, carry the credit card debt.
Using a credit card to pay for groceries and gas can help you build credit, if you can pay the entire balance off, in full, each month. You can also have bills in your name.
For instance, put the cell phone bill in your name, or the monthly cable bill. When you pay these bills off on time, your credit will slowly, but surely, begin to rise.
The fastest way to build credit is through consistency and best practices being in place. You do not need a massive loan in your name just for the sake of building credit.
Pay your gym bill, doctor bills, cable and cell phone bill on time, each month. This will set you up for success.
Why Should You Check Your Credit Score?
As mentioned above, your credit score reports on your credit history. It’s possible this history is inaccurate, and these inaccuracies could be lowering your overall credit score.
You have the right to dispute information on your credit report. For instance, you may have a ‘past due’ debt that’s in collections but you recall vividly paying off this debt in full, and there is no reason why this should be in collections.
If you can pull proof of payment, this debt can be removed from your credit score and your score will naturally increase. Working with a credit repair specialist is a great way to identify anything on your credit report that may not belong there, and develop a proper plan of attack.
Three Easy Steps to Check Your Credit Score
How do I check my credit score for free? We’re glad you asked. There are a few steps you can follow to check your credit score.
Your Free Annual Report
You can obtain a free copy of your annual credit report from each of the major credit agencies. To access this free credit report, visit www.annualcreditreport.com or call 877-322-8228.
Your Banking Institution
Many banking institutions also provide their members with access to their FICO score at any time. Although the FICO score is not the complete full credit score, it gets one directionally aligned with where their credit score is, and accessing one’s FICO score can be done with ease.
An Online Site
There are plenty of online sites and services that can provide you with access to your credit score. We’ll dive into these sites and services below.
Options for Checking Your Credit Score
In today’s day of age, just about anything can be done on a smartphone or laptop. Here are a few easy ways you can check your credit score without leaving your house.
Does Your Bank Offer Free Credit Score Quotes?
As mentioned above, plenty of banks of credit unions offer their members access to checking their FICO score at any time. You can do so on their mobile platform or online site.
Experian is one of the three credit reporting agencies. You can visit their website to check your credit score. Basic information is required, such as your full name, address, and social security number.
You can also check your credit score with Equifax, the second credit report agency. You will have to create an account to check your credit score with Equifax.
Similar to Experian, they will require accurate information to properly pull your credit history.
TransUnion is the third credit reporting agency you can check your credit score with. Signing up for their service is easy, and they offer identity theft protection.
Credit Karma is an American company that was initially founded in 2007. If you’re wondering how to check your credit score for free, look no further.
Credit Karma offers a variety of financial services and advice, and checking one’s credit score is just one service that falls under their umbrella.
Credit is Everything
One’s credit score plays a role in just about every financial decision one can make. From purchasing a home, renting an apartment, or even financing a car, your credit score will be factored into the equation.
The higher your credit score is, the more comfortable a lender will be with lending you money. The lower your score is, the more hesitant a lender will be.
Understanding your current credit score is the first step to improving it. You can’t fix something unless you know it needs to be fixed.
There are plenty of online websites that offer visibility into your credit score. Check your score today to set you up for a financially better tomorrow!