Your Credit Score – What it Means and Why it’s Important
Written by Cooper & Friedman PLLC on August 10, 2015
We’ve all heard about how important it is to have a good credit score, but do we really know why? Credit scores are ratings used to determine if you are able to qualify for some credit cards, loans or different financial services. There is a special algorithm used to determine this score. Your credit score is based off of previous payments, public records, length of credit history, accounts in use and different inquiries.
Your Credit Score – Answers To 5 Commonly Asked Questions
1. Is it important to have a good credit score?
Having a good credit score determines whether you are able to qualify for a loan to buy your first home, and the types of interest rates you receive, so yes credit scores are extremely important. For example, as explained on Credit.com, if you have a good credit score and you purchase a house for $330K with a 30 year fixed mortgage, you may pay $90K less for that property over the length of the loan, than if you had a low credit score.
2. What factors determine credit scores?
While your payment history accounts for 35 percent of your cumulative credit score, it’s also necessary to pay current and past credit accounts in a timely manner. Failing to pay accounts or paying bills late will harm your credit score greatly. The best way to increase your credit score is by settling your payments in full and consistently on time.
3. What other things can lower my credit score?
As far as public records go, anytime you have been involved in a bankruptcy or collection issue, this will generally lower your score. Try and avoid suspicious activity and insufficient funding. While these aren’t always avoidable, they are a large threat to your credit score.
4. What should my credit score be?
Your credit score should be something you work hard to maintain. Credit Scores are based off of the 1980s Fair Isaac Corporation (FICO) mathematical model. These scores range from a low of 300 to a high of 850. A good credit score is 720 or higher. While there are other models used to rate credit scores like: VantageScore 3.0, PLUSScores, and TransRisk Scores, always aim for a higher score. While some lenders use different credit scores and opinions, generally, the higher the score, the lower the perceived risk. Always work to improve your credit score, because it will only benefit you positively.
5. Should I know my credit score?
Before you walk into that bank or loan office, know your credit score. Don’t just assume your score is good or bad based off your own opinion or intellect. Use one of the many sites offering free credit reports to determine your actual number. This will help you plan ahead and gives you a better chance for approval. Checking your credit score should be ongoing and consistent.
As you can see, there are many benefits to having a good credit rating. And fortunately, there are specific things you can do to help maintain your good credit. Sometimes low credit scores are the result of fraudulent activity or unfair credit reporting.
If you are the victim of unfair credit reporting, you should seek help from a law firm that truly understands the details involved in credit reporting law. There are federal laws which protect your credit and enable attorneys to fix errors if they do occur. Cooper and Friedman Attorneys at Law can help you fix any false information on your credit report. For more information including a free consultation about your specific situation, please call 502-459-7555 today.