September 21, 2017
 
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Credit Scores: What They Mean for Consumers

You’ve probably heard a lender talking about your credit score if you’ve ever applied for a mortgage, auto loan, credit card, or other type of credit. Usually, you just want to know the bottom line as to whether or not they’ll loan you the money and how much it will cost you. Taking the mystery out of it can really help you improve your financial health and in the long run, may help you save money.

A
credit score is a three digit number generated by a formula which is based on information that is currently in your credit report and compared to the credit information of millions of other people. There are different formulas in use, but the most popular is FICO developed by Fair Isaac and Company. Credit Scores are used extensively by lenders to determine whether a person qualifies for a particular loan, credit card, or service, and what the interest rate will be. Simply put, those with higher scores are more likely to get approved for a loan and get lower interest rates.

 

There are five major categories that make up the credit score. Scores range from 300-850. Factors such as age, sex, race, or income cannot be taken into consideration. In the U.S., the median FICO score is 723. A score above this will get you the most favorable interest rate on a mortgage, according to Fair Isaac.

 

Here are some tips for improving your score:

 

·        Monitor your credit report—make sure it is accurate, dispute any errors

·        Pay your bills on time—this cannot be stressed enough!

·        Keep your balances low—don’t max out your cards

·        Pay off debt rather than moving it around to other credit cards

·        Keep old accounts even if you no longer use them, rather than closing them

·        Minimize inquiries on your credit report—the more inquiries, the lower the score

 

You can get your credit score for a small fee when you request your free credit report from www.annualcreditreport.com.

 

 

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