Your credit rating affects many important aspects of your life, especially if you wish to apply for a loan, rent an apartment or obtain a credit card.
For instance, your credit score will greatly affect your eligibility for a loan or credit card, and it will determine the type of interest rate you receive whenever you borrow money from a financial institution.
With a high credit score, you will typically qualify for lower interest rates and better financing options. However, a low score usually results in higher interest rates or the inability to qualify for a loan or new line of credit.
You can also learn valuable information about your financial standing by reviewing your credit report. This is something you should do annually.
To learn more about your rating and the different ways in which it affects you, review the information below. The better you understand your credit score and report, the likelier you are to have a fuller understanding of your financial health.
What’s a credit report?
Your credit report contains important information about your borrowing history. Specifically, this report details how much money you have borrowed in the past and how likely you are to pay back what you borrow.
Moreover, your credit history report includes personal information, such as your Social Security Number (SSN), name and address. Your report also includes the following information:
- A list of your current and past credit accounts
- The number of credit cards and loans you have
- The amount of money you owe
- Your credit utilization
- Whether you pay your bills on time
- Soft and hard inquiries from other companies who have accessed your report
In some cases, a credit rating check may reveal information from collection agencies, especially if you have any past-due payments. If you have ever filed for bankruptcy, your report may include this information, as well.
Once information is on your credit history, these recordings will typically remain on your report and impact your score for a maximum of seven years. However, in some cases, information can remain on your credit report for far longer.
The most common example of this is bankruptcy. If you file for bankruptcy, that information will remain on your report and impact your credit rating for up to 10 years. Once these 10 years have passed, however, this information will be removed from your credit report.
On the other hand, your credit report will also reflect whether or not you pay your credit card bills on time, which can make benefit you positively if you’re consistent with your payments. Likewise, if you constantly pay your bills late, lenders who request a copy of your credit report will also be able to see this information.
What are credit reports used for?
You can check your credit report to learn about your financial health. However, credit reports are beneficial for many people you hope to do business with. For example, lenders, landlords and insurance agents can request this information to get a better idea of how you handle your money and pay your bills.
Once companies request your credit report, they can use this information for a variety of reasons. For example, some institutions will use your report to determine:
- What your insurance premium will be.
- If they’ll rent to you.
- If they will issue you a personal or mortgage loan.
- What your interest rate will be on a loan.
Therefore, it’s important that your report is accurate and up to date. Otherwise, you may be suffering from credit-related consequences you aren’t responsible for.
Furthermore, keep in mind that the information on your credit report plays a big part in your overall credit score. This means that your credit score is a good gauge to help you keep track of what’s going on in your credit report. If you see a major jump or dip in your credit score, for example, this can be an indicator that there has been a change in your credit report.
Checking Your Credit Report
You’re entitled to receive one free credit report each year. You can also request reports through the three major credit-reporting bureaus:
Can I check my credit report on any site?
The best way for you to obtain your credit report is to use the links included above. Do not go to any other site and request your credit report because they might not be legitimate. This, in turn, can put your identity and personal information at risk.
However, if you only want to obtain your credit score, there are different places you can access this information. One of the easiest ways you view your credit score is by logging into your bank account. Different banking institutions offer this information free of charge to clients.
Check with your bank to see if you can view your credit score through its website.
How Your Credit Rating Affects You
Your credit score is a general reflection of the information that’s recorded in your credit report. Therefore, a low rating may affect your eligibility for a loan.
Furthermore, your score will usually affect the interest you need to pay for a loan, if you’re approved to borrow money from a lender. The lower your credit score, the likelier it’ll be that you’ll have a high interest rate for the amount you borrow.
Therefore, it is essential that you work on building or rebuilding your credit, especially if you do not have much of a credit history or if you have a poor credit score.
A high credit score typically rating ranges between 700 and 850, while scores of around 500 or less are considered low. However, different types of credit ratings are used to determine your creditworthiness, including those by FICO and VantageScore.
Since having a high credit score can help you save money in the future, it’s important that your score is as high as possible.
10 Tips to Help You Improve Your Credit Rating
- Know how much you owe. Do you have debt? Make sure you know exactly how much you owe so you can begin to plan about how to reduce your overall debt. Having a large amount of debt can have a negative effect on your credit rating.
- Understand the type of debt you have. Do you have credit card debt or an unpaid student loan? The type of debt you have can also have an effect on the strategy you use to pay off what you owe.
- Establish a realistic budget you can follow. Once you know how much you owe, come up with a budget to help you pay off your debt.
- Never miss a payment. Even if you have debt, you can keep your credit score relatively stable by making consistent payments toward your debt.
- Never make a late payment. Just like you should never miss a payment, you should do your best to avoid late payments, as well. This will negatively impact your credit rating because it shows you aren’t reliable to pay back what you owe on time.
- Keep your lines of credit open. Some people who struggle with overspending on their credit cards may be tempted to cancel your credit cards. While this can help curb the impulse to spend, it may actually hurt your credit score in the long run. This is especially true if you cancel your oldest credit line.
- Hold off on applying for new credit lines. Whenever you apply for new lines of credit, this causes a temporary drop in your credit score. Furthermore, applying for multiple lines of credit at one time can raise a red flag for potential lenders, which can lessen your chances of getting approved for a new credit card.
- Look for errors on your credit report. When you get your free credit report each year, check and make sure all the information regarding your account is accurate. You could have a lower score than what you deserve because you’re being incorrectly charged for something.
- Establish a payment plan. If you have unpaid medical bills or any other debts you’ve avoided paying, contact the people you owe. Establish a payment plan so you can work on repaying your debt sooner rather than later.
- Devote extra resources to paying off your debt. The quicker you pay off your debt, the sooner you can make real strides in improving your credit score. Make sure you devote any extra funds you have to paying off what you owe.
Download Free Useful Templates for Debt Management:
- Debt Reduction Calculator
- Credit Repair Spreadsheet
- Credit Card Log
- Credit Card Payoff Calculator
- Mortgage Loan Calculator
- Credit Card Tracker
Why should I check my credit score?
Performing a periodic credit score check is crucial, especially if you plan to rent an apartment or apply for a loan or credit card. When a lender, landlord or potential employer looks at your borrowing history to determine your creditworthiness, any suspicious information on your report could negatively affect your ability to complete these tasks.
By regularly checking your rating, you will be able to review your borrowing history for errors or suspicious activity, and you can make changes as needed.
Furthermore, if your report contains mistakes or signs of fraudulent activity, it is important that you attempt to correct this inaccurate information as soon as possible.
If you notice many mistakes on your credit report, pay attention. This can be a telltale sign that you are the victim of identity theft. The quicker you catch these errors, the sooner you can work to repair any damage that has already been done to your credit.
When you get a credit score free report, you will also be able to determine whether you need to improve your credit before borrowing money or renting an apartment.
Improving your credit score takes time, but there are several actions you can take to rebuild your credit. These include:
- Paying your bills on time.
- Lowering the amount of money you owe by paying off outstanding debts.
- Keeping your credit card balances low.
- Disputing errors on your report.
Depending on the credit agency you use, you may also gain suggestions that could help you bolster your credit. You may also get tips about how you can reduce the payments you owe or the interest rates you’re subject to.
For example, if you have an auto loan with a particularly high insurance rate, but your credit rating has approved since the loan began, there may be refinancing options you qualify for.
Tips to Help You Keep Your Identity Safe
If you notice a significant amount of errors in your credit report, it may be a sign that you’re a victim of identity theft. Here are some tips to help you keep your identity protected.
- Shred any mail that includes sensitive information.
- Don’t give out your Social Security Number to unverified websites online.
- Keep your personal documents safe at home.
- Leave your Social Security card at home whenever you travel.
- Don’t give your personal information to individuals who call you from phone numbers you don’t recognize.
- Make sure your email and bank accounts are protected with strong, unique passwords.