Your credit score tells creditors and lenders how likely you are to pay your bills and cover your debts on time and in full. The lower your score, the higher the risk they take on you and the harder it is to get approved for a new credit card, mortgage, or car loan.
Credit scores fall on a scale of 300 to 850. Although each financial institution determines what constitutes good or bad credit for their products, a score in the middle of 700 or higher will generally give you more options.
There are several important facts about your credit score that you should know:
Your credit score reflects your risk at any given time. Scores change frequently as your credit balance, payment history, and other factors that make up your score change. That’s why it’s worth checking your score regularly.
You have more than one credit score. Scores may vary depending on the credit bureau – Experian, Equifax or TransUnion – providing the data. Similarly, there are several scoring models, or formulas, used to calculate scores, the most common being FICO 8, followed by VantageScore 3.0. Credit bureaus sometimes have their own “educational” scores. The numbers may be similar, but there could also be a discrepancy of more than 10 points.
Different lenders may use different scores. Because you have a handful of credit scores at any one time, you may not know the exact number your lender sees. As Michelle Petrowski, an Arizona-based certified financial planner explains with Being in Abundance, credit card companies typically rely on FICO 8 using data from the three credit bureaus, but banks are looking at other versions. of FICO when approving mortgages.
Here’s how to get your credit score.
How to get your credit score for free
If you have a credit card or car loan, you may be able to get your credit score – updated monthly – from your lender free of charge and without a hitch by logging into your online account or visiting your statement.
You will also typically see information about credit balances and other factors that impact your score, similar to what is provided in a full credit report.
“If it’s free, why not check it monthly to keep up to date with your progress,” says Petrowski.
Note that the score provided by a creditor or lender may not be a FICO 8 score. Chase and American Express, for example, offer VantageScore 3.0 scores based on data from Experian and TransUnion, respectively.
There are two other ways to get your credit score for free. One is to work with a non-profit credit counselor or housing counsellor, both of whom may be able to get a free credit score as part of their budget counseling or debt management services. debt.
Finally, there are a handful of credit score services that offer free score reports – sort of. Credit Karma remains free to consumers because it relies on targeted advertising using your credit data. Credit Karma scores use information from TransUnion and Equifax.
NerdWallet is also ad-supported and offers VantageScore 3.0 scores from TransUnion. Experian provides FICO 8 scores for free in exchange for your consent to receive offers of products, services and credit.
Credit Sesame, meanwhile, provides scores based on TransUnion data for its free customers, while paying subscribers get scores from all three bureaus updated monthly.
Before signing up for a “free” credit score, check to see if you’re required to provide a credit card number. Some services may offer “free” trials, but will charge your card later if you forget to cancel.
Paid alternatives to request your credit score
A final option for seeing your credit score is to buy it directly from the credit reporting bureaus. You can sign up for a single report from one office ($19.95) or all three ($59.85) at myFICO.com, or you can subscribe to identity theft protection plans that can include your credit reports, credit scores and credit monitoring. services.
How is my credit score calculated?
Your credit score incorporates a handful of factors from your financial past and present:
- Payment history: on time, late and missed payments
- Credit balance and usage: what percentage of available credit you are using and how much you owe
- Credit age: how long your accounts have been open
- Credit Applications: Recent New Credit Applications
- Types of credit: The mix of credit cards and loans
- Negative marks: any history of collections, foreclosures or bankruptcies
Again, different scoring models may weight each factor differently, which is why not all scores are equal. Also, your credit reports — where some of your score data comes from — may not be the same across all three credit bureaus. The exact formula for credit score calculations is a closely guarded secret.
At the end of the line
Your credit score provides a quick snapshot of your creditworthiness to help lenders decide if you’re worth the risk. You can get free credit scores from your credit card or lending company, although it’s just a variation of your score at any given time.
To get a better idea of fluctuations, especially if you’ve missed a payment, made a big purchase on credit, or opened a new account, consider asking for your credit score frequently and from several sources.
