If you’re thinking about buying a home, you need to be aware of your credit. Better credit may mean mortgage opportunities with lower rates.
Understand about your credit score
Your Credit Report
Your credit report is a record of money you've borrowed, your history of paying it back and how much open credit is available to you. It consists of:A list of debts and a history of how you've paid them, including credit cards, car loans and student loans.
Any bills referred to a collection agency, such as utility or medical bills that you did not pay or were significantly late.
Public-record information, such as tax liens and bankruptcies that may be linked to you.
Inquiries made about your creditworthiness, showing how many inquiries were made for your credit and if you were given credit based on the inquiry.
Your Credit Score
Your credit score is a single number that helps lenders decide how likely you are to repay your debts and plays a significant role when securing a mortgage. A score ranges from 300 – 850 points and is based on:Your payment history and ability to repay your debts on time. Late payments will decrease your credit score.
The amount of total debt you owe, including credit cards, student loans and car loans. If your credit cards are at their limits, this can lower your credit score - even if the amount you owe isn't large.
How long you've used credit and how you’ve managed it. If you show a pattern of managing your credit wisely, keeping credit card balances low and paying your bills on time, your credit score will be positively affected.
How often you apply for new credit and take on new debt. If you've applied for several credit cards at the same time, your credit score can go down.
The types of credit you currently use, including credit cards, retail accounts, installment loans, finance company accounts and mortgages.
A general guide to interpreting your score:
Credit scores ranging from 770 to 850 are considered very good, and the best credit rates are usually available to borrowers within this range.
Credit scores above 700 are considered good, and most borrowers' credit scores are within this range. The median credit score is about 725.
Credit scores below the mid-600s may have difficulty obtaining a loan, and will experience higher interest rates and/ or larger down payments.
You are entitled by law to get a free copy of your credit report:
Every 12 months
Every time you find a mistake and want to make sure it's been fixed
If you've been denied credit and in certain other situations, such as fraud
To get your annual free credit report, go to Here
Why do I need to check my Credit Score?
A good credit score is your passport to competitive interest rates for mortgages, cars, credit card offers, job offers, insurance premiums and more. A strong score is worth money because it saves you in excess costsCurious about your credit score? With a Credit.com account, you can get your free credit score, which is updated every month. It’s a great way to monitor your credit health, and track your progress against goals.Get started »It’s your credit score— you should know it
We think it’s important that you have access to your credit score. After all, it’s a number that lenders, landlords and others use to evaluate your credit worthiness. With Credit.com, you get a free credit score from Experian, the most comprehensive credit bureau in the U.S. Plus, you get your VantageScore 3.0 credit score
See how your score compares
Find out how your credit score stacks up against others in your state and across the U.S., and then chart how your score changes over time.
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Why check your credit report regularly?
1. To detect identity fraud early We all know we should check our credit card statements every month for charges that we haven’t made. But that only catches the thief who uses an account you know you have. Scan for signs of possible fraud with your free credit report.
In the past few years, identity fraud has risen dramatically. In this insidious form of credit fraud, a thief steals your good credit by taking over or opening accounts in your name, running up large balances and leaving you to deal with the collectors when they come calling.
New accounts opened with your identity will appear on your credit report, revealing identity fraud to you. If you don’t check your credit report, it could be months before the credit grantor, fed up with nonpayment, turns the account over to a collector who tracks you down and demands payment for a loan you’ve never even heard of.
As with much less problematic inaccuracies, identity fraud is something you can detect and remedy most effectively by checking your credit history thoroughly and on a routine basis.
2. To become an informed consumer of credit services
Your credit report can have a dramatic impact on your financial stability. With good credit, you can obtain benefits of all kinds – a home mortgage or lease on an apartment, an auto loan, low-interest credit cards and more – with ease. But if your credit history is poor, many of these financial options may be unavailable to you. Either way, you have a right to know what to expect when a lender runs a credit check on you.
Aside from paying your bills regularly and on time, the single most important thing you can do to ensure that when others check into your credit they’ll find you to be a good risk is to be aware of the contents of your credit report. Check your report for free and approach lenders with confidence.
Studies have shown that many credit files contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance, or even a job. Often the result of simple human error, they can be caused by anything from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name.
That’s why it’s essential that you check all of your credit files – and monitor your credit regularly – to protect your good credit standing, even if you always pay all your bills on time.
And if your credit is less than perfect now, checking your report will help you identify lingering problems so you can deal with them effectively and move on toward an improved credit standing. Whatever your situation, reviewing your report regularly is the only way to be sure that you will go into any credit conversations knowing everything lenders will know.
“How important is your credit score?”
The good, the bad, and the important things to know about credit.The world seems to run on credit nowadays. Many of us have school, car and even home loans. And we likely all have one or more credit cards in our wallet. The problem is we don’t give credit the amount of thought we should.
At its best, credit can help us manage our financial lives. At its worst, it can get us into serious financial trouble.
Your credit history is something that stays with you for a long time and can impact everything from buying a home to getting a job.
It’s an important source of information that people who grant loans use to determine if they’ll lend you money, how much and under what terms. The better your credit history, the more likely you’ll be able to obtain the financing you need at favorable terms. So, needless to say, having good credit is of great importance.
What exactly do you need to know?
Let’s start with a quick test. In your opinion, which of these statements about credit is true?
Credit is the temporary use of someone else’s money…
Credit is a measure of your financial trustworthiness…
Credit is a financial obligation you have to repay…
Credit is debt accumulated from a credit card or loan…
That question was posed to me recently as I stood onstage after delivering a presentation on how to optimize your credit to a group of some 500 women for the annual Women’s Money Conference in Las Vegas. I only had a few moments to summarize the importance of credit scores to the audience and tell them that, with a strong credit score, they may save thousands of dollars each year. With more time and preparation, though, this is the answer I would have given:
A good score = money in your pocket
A good credit score is an important attribute for any individual to have. While you may not want to block yourself into countless loans with high interest rates and no end to the payments in sight, some loans are a necessary aspect to life. Building a credit history and maintaining a high credit score can have a dramatic impact on your quality of life now and years in the future when you're considering applying for a loan or prepaid debit card.
Buying a House
Purchasing a house is one of the greatest investments you can make in your own future. It’s also one of the most difficult ones to achieve if you don’t have a good credit score. The nation has been overtaken with foreclosures and short sales, forcing banks to crack down hard on future homeowners with even more stringent requirements to qualify for a loan. Maintaining a good credit score now will make it easier to get a home loan in the future.
Buying a Car
This is a common type of purchase to make, with many Americans taking out loans for vehicles on a daily basis. Car loans are much smaller than house loans, so they’re a little easier to get with a poor credit score. At the same time, with a poor credit score you can expect to see higher interest rates and a larger required down payment on a vehicle.
Starting a Business
If you’re thinking about starting a business and need a business loan, guess what? Your credit score and history will factor into your eligibility for small business financing. Regardless of whether you’re starting a business from scratch or trying to get the funds to expand, your individual credit score will affect your ability to get a loan for your business.
Getting a Job
You may not have heard of this one before, but many employers are now running credit checks on prospective employees prior to hiring them. This is especially common in the government and financial sectors. A negative score or history could potentially keep you from being hired or even getting a raise.
Getting Lower Interest Rates
While a good credit score is an important factor in obtaining any type of financial assistance, many banks are still willing to give loans to individuals with poor credit. However, if your credit is damaged, it will still be a struggle to get a loan, and when you do, you’ll likely notice a much higher interest rate. This is how financial institutes outweigh the risk of giving you money.
So if you want better interest rates to save yourself more money in the long run, keep that credit score high. It’s easy to get by with a good credit score or even fair or poor one, but realize it will end up costing you more in the long run because of the risk you pose to lenders. Rather than just dealing with a low score, work to repair your credit score by making payments early, paying off loans before the end of the loan period and paying off your credit card in full each month.
Banks and credit card companies use credit scores to evaluate the risk of lending money to consumers and to reduce losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate and what credit limits.
It is also important to know that your credit score reflects your personality and character and follows you forever. It plays a major role in many financial situations throughout your life. Employers also prefer a person with a good score and clean report. A high score represents sensibility and a level of responsibility.
Tips for improving your credit score can include: paying your bills on time, asking for your credit report and thoroughly checking it for flaws, limiting or stop using plastic money and not falling prey to credit repair frauds.
Catch the drip before it’s a flood
If you are monitoring your credit scores and they start to drop, that’s valuable information. It can warn you that your finances are starting to head in the wrong direction, and that a little course correction may be in order.
If your credit card balances start to creep closer to the limits, for example, you may not realize there’s a problem since your minimum payments don’t rise that much each month. But over time, that increase in debt may become quite large. Your credit score will reflect how close you are to your available credit limits on your cards, and may alert you to the fact that you need to investigate ways to reduce that debt.
Or a change in one of your scores can indicate a much bigger problem. If it takes a dive but nothing significant has changed in the way you handle your finances, then it may reveal that you are the victim of a credit report mistake, or worse, identity theft. If you aren’t monitoring your scores, you may not know that there’s an issue until it has wrecked your credit.
Boost your job prospects
Employers don’t obtain credit scores; they only receive credit reports. But the information that goes into calculating a credit score is the information in your credit report, so the two are closely related. Nearly half of employers check credit reports for at least some applicants, so staying on top of the information in your reports can be helpful if you are looking for a new job.
And even if you’re not job hunting, knowing your credit is in good shape can make life a little less stressful.
Keep it all in perspective
So, yes, your credit score is important, much like saving for retirement or creating a spending plan. Still, if your credit scores have been damaged as a result of the economic downturn of the past few years, don’t beat yourself up. Over time, financial wounds can heal and the scars on your credit will disappear. That’s especially true if you are proactive about monitoring your credit and maintaining good credit references to rebuild your credit going forward. You can monitor your credit reports for free from each of the three major credit reporting agencies once each year through Here!!!
Getting Credit
To obtain credit you have to be financially responsible and you may need to meet a minimum age requirement. You may also need to prove that:
You’ve been repaying your debts and managing credit in the past
You have sufficient collateral from which you could repay your debt if necessary
You have sufficient income to repay what you borrow
The 3 “Cs” of credit
This is a fast and easy way to remember what it takes to get credit. The “3C’s” summarize your ability to get credit.
The “3C’s” are:
Character
Capital
Capacity
Character refers to your history of handling credit. Are you honest and reliable? Do you pay your bills on time? Good credit management will show up on your credit report. Lenders want to know if you pay your bills on time (particularly your debts), how much debt you currently owe, how long you’ve had credit, how frequently you apply for new credit and what types of credit you’ve obtained in the past.
Capital refers to assets that you own such as real estate, personal property, savings, automobiles, and other “collateral” that can be used to repay credit debts if income is not available.
Capacity is a measure of your ability to repay a debt. Do you have a steady source of income and is it enough to repay all that you owe as well as the new loan you’re trying to borrow? And will that income also be enough to meet your other monthly expenses such as rent, food and transportation?
A creditor may not evaluate all three C’s in all cases because credit products vary. For example,Capacity is not usually considered in the case of student loans and, to get a Federal Direct Loan, none of the C’s is used.
However, character is still an important factor if you try to obtain a Grad PLUS loan, because you can’t have adverse credit in order to obtain the loan on your own signature.
If you are not able to show that you have the 3C’s, does it mean that you won’t be able to get credit? Not necessarily, but it might make getting credit more difficult and/or more expensive.
How to find out if you have a credit history?
If you want to check to see if you have a credit history, go to CreditscorePro. You are entitled to a free credit report from each of the three national consumer reporting agencies (Equifax, Experian and TransUnion) once every 12 months. Be careful and watch out for other ways that claim to provide you with a free credit report as there is typically a hidden fee associated with additional services such as credit monitoring.
Are you ready to check credit score and get it?
