Credit Score Defined
Everyone's at least heard of a credit score, but for a lot of folks the concept seems to be confusing (let's face it, it IS confusing), but a basic understanding of what is being computed can go a long way in trying to ensure that you maintain a happy, healthy credit report!
What Is It?
The truth is, if you're not a finance expert credit scores can seem very complex, so don't feel bad! Essentially, a credit score is a report of you credit history that tracks current debts, bill payment histories, late payments, etc. to try and determine how much of a financial "risk" it would be to provide you with a loan.
Looking to buy a new car? They're going to determine your interest rate based off of that score. Same goes for buying a house, the lower the score, the higher the interest rate. If the credit score is too low, they won't approve the loan at all. Credit Scores are ranked on a scale with 300 points being on the low end and 850 points being on the high end.
Who Determines It?
There's a couple of different ways that Credit Scores are determined. The scores are based off of reports generated by one of three credit bureaus, those bureaus are Experian, Equifax, and TransUnion. Each Bureau has their own method of determining your score, and when you're applying for a home loan, there is a fourth method known as FICO(Fair Isaac & Co.), that is used to decide how credit worthy you are.
How Do I Get My Score?
Consumers have the legal right to obtain their credit report every 12 months, free of charge. Go to http://www.annualcreditreport.com in order to find out what your report looks like. This is important because it allows you to see what is on there and if there is incorrect data (it happens, never assume that it's right unless you've verified it yourself), and from there you can dispute items that you feel are incorrect.
What is a "Good" Score?
In terms of purchasing a home, what you're looking for is a minimum of 620. Anything below that is considered poor and makes it very difficult to obtain loan approval. Remember, the higher the score, the better your loan terms can be.
Credit Score Categories:
850-750 Excellent
749-660 Good
659-620 Fair
619-350 Poor
