Knowing Your Credit Score

In the home finance world, Credit Scores are a top factor in determining approval for a mortgage.  You cannot get very far in looking for mortgages without knowing your score and having good credit is key to getting a good loan.  Fortunately, there are many ways to find this information.

What are Credit Reports and who creates them?

There are three companies that prepare credit files that determine your creditworthiness; Equifax, Experian, and Transunion.  Whenever a loan or credit card is taken out or a charge or payment is made, the lending company reports it to these reporting agencies.  These companies then consolidate all of an individual’s credit, loan, and payment history together into a credit report with other financially relevant information such as addresses lived and employment info.

The reports usually list all used and available credit and loans broken down by the lenders you’ve borrowed from.  They also usually include record of the companies that asked to see your reports as well as information regarding if your loans are paid on time and how much you pay.

What is a “Credit Score?”

Equifax, Experian, and Transunion take the information they gathered on their credit reports and use formulas to calculate an individual’s credit score.   A credit score is a grading system that uses past credit history to determine how well you will handle and pay back future debts.

A good credit score to a mortgage lender shows a strong likelihood that the loan will be repaid since it show proof applicant’s reliability to meet credit obligations.  Good scores make lenders more inclined to approve a loan and give good rates.  On the contrary, a low credit score would show greater risk that the individual may default.  This info would make the mortgage lender more inclined to require higher interest rates or even deny loans due to the potential risk factors involved.

Checking Your Credit Report and Score

When checking your credit its important to understand that your score may not be the same across all three credit reporting companies.  Equifax, Experian, and Tansunion each have their own formulas for calculating credit scores and not all credit is necessarily reported to each company.  Despite the variations, an individual’s credit scores are for the most part fairly close across the three companies.  They are rarely more than a couple of points off.

By law you can receive from each of these companies one free copy of your credit report each year. Although these reports provide you with all the information at these companies disposal for calculating your credit scores, what is not included is the actual credit scores themselves.  You can purchase your scores directly from each company.  Some offer access through credit educational product subscriptions and in some cases even offer scores for “free” as long as the product is cancelled within a given period of time.

Despite the expense, many people find the credit educational products such as Experian’s credit tracker and Equifax Complete Advantage can be helpful tools for setting goals and tracking progress in improving credit scores.

You can retrieve your free annual credit reports from

https://www.annualcreditreport.com

They are the only website authorized by the federal government for giving free credit reports.  You may also contact them by phone:

1-877-322-8228

You may purchase your credit scores and browse some potentially beneficial credit products by directly visiting the reporting companies websites:

http://www.experian.com

http://www.equifax.com

http://www.transunion.com

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