What is a credit score?
Inevitably, in your journey towards homeownership, lenders will run an extensive credit check on you. It’s a commonplace activity with an important objective: to gain access to your personalized credit score in an effort to better evaluate your ability to pay back debts in a timely, reliable manner.
Suffice it to say, your credit score is a highly significant factor in determining your mortgage rate and the type of loan you qualify for. And to earn a good credit score, you need to demonstrate an ability to borrow money and to pay it back on time. Sounds simple enough, right?
Here’s the thing: Your credit score is really an expression of your entire credit history. From your first credit card transaction to your most recent cell phone bill, a score has been slowly emerging and then consistently tracking you, evolving as your borrowing and payment habits have changed throughout the years. Depending on your track record, this can either be helpful or detrimental to your credit score, and thus your future lending needs.
Financial reputation is of paramount importance, and yet many people lack a sophisticated understanding of what factors go into defining their credit score. This article addresses the agencies responsible for formulating your credit score, the factors that affect it and some best practices for maintaining good credit.
A general introduction to defining your credit score
Once you decide to borrow money from a bank or an approved lender, you will have to agree to an extensive credit check that will produce, among other things, a credit score from one of the three main credit reporting agencies.
A credit score is a three-digit number that succinctly articulates your credit history and financial reputation to future lenders. Essentially, it’s a reflection of your ability to pay your debts in a consistent and timely manner.
This is critical information to lenders, who will be using it to guide decisions such as how much money they are willing to lend you, over what time period you will be allowed to repay the borrowed sum and for loans at attractive rates tomorrow. It’s never too late to take action to improve your credit.
*RATE IS NOT A CREDIT REPAIR COMPANY, CREDIT REPORTING AGENCY, BROKER OR ADVISOR. You acknowledge that Rate is not a credit repair company or similarly regulated organization under applicable laws, and does not provide credit repair services. Where available, recommendations, tips and education materials are provided to you at no additional charge, and for educational purposes only. The services are intended to provide you with general information and assist you with identifying your options. The information is provided only to enable you to make your own choices about your personal finance, and is not intended to provide, legal, tax or financial advice. We do not provide any services to repair or improve your credit profile or score, nor do we provide any representation that the information we provide will actually repair or improve your profile. Consult the services of a competent professional when you need any type of assistance. You acknowledge that Rate is not a “consumer reporting agency” as that term is defined in the Fair Credit Reporting Act as amended.