You are ready to buy your first home. Maybe you are preparing to purchase a new car. Whatever your plans are, your dreams can be quickly dashed by one big thing: your credit report.
Your credit report is generated by three bureaus, which include Equifax, Experian and TransUnion. The report contains personal identifying information, court judgments, bankruptcies, details about past employment and your history of paying bills. The most significant item in the report is your credit score.
Equifax, Experian and TransUnion each provide what is referred to as a FICO (Fair Isaac Corporation) score. This number is generally between 300 and 800. A FICO score above 700 is considered to be favorable. The credit bureaus use similar formulas to determine your credit score, but the score will be slightly different from one agency to the next. The three scores should be within a few points of one another. If they vary widely, this could be an indication of errors in your credit report.
Banks use your credit score to determine how likely you are to pay your mortgage if they lend you money. The score is based on a number of factors, such as the length of your credit history, the number of new accounts you have, the balance owed on your accounts, any debts turned over to collections agencies and how timely you have been in making payments.
If you are approved for a home loan, the amount of interest you pay depends heavily on your credit score. A low credit score will cause you to have a high interest rate on your mortgage, and that could cost you thousands of dollars over the course of your home loan.
It is not just home and car loans that are affected by your credit score. Banks’ decisions regarding credit card applications, employers’ hiring practices, insurance rates, renting an apartment and getting the utilities and phone turned on in a new residence can all be affected by what is in your credit report.
If you have a low credit score, do not despair because there are things you can do to rebuild credit. You can get a better score by paying bills on time, paying down large balances on accounts and avoiding applying for new credit.
Time can also improve your credit score, as negative information will eventually be removed. Bankruptcies remain on credit reports for ten years, while other negative information stays on reports for seven.
Inaccurate information also affects your score. You should request a free copy of your report yearly from each of the three credit bureaus. If you find errors in your report, dispute the information to possibly have it removed. Removing inaccurate negative information from your report can improve your credit score.
Your credit report is not likely to be something you think about regularly. However, you should monitor your report because the score associated with it affects many areas of your life. If you have a low credit score, do whatever you can to rebuild credit and get a better score. It can save you a lot of money in terms of the interest you have to pay on loans and credit cards and can also lower the deposit amount you have to make when you rent a new apartment.
Article by Richard Towler from secured credit cards comparison site Secured Credit Cards 4U which compares cards designed to help raise and build credit scores including secured cards as well as other types including student credit cards. All offers can be compared side by side to see cards from different banks on a more level playing field.