If you’re in the market for a new home, new car, or even a new cell phone plan, understanding the significance of all of your three credit scores is vital.
Your credit scores can be your best friend or your worst enemy. Good scores act as keys, opening financial doors for you. Poor scores serve as deadbolts, locking you out instead.
Most Americans know that they have 3 credit scores, but few understand why.
(You can get yours at FreeScore360.com).
We have decided to put together this guide to help you understand the significance of all three credit scores including: what is considered a good credit score, what you need to know about the 3 major credit bureaus, the difference between credit scores and credit reports, and how to improve all three credit scores.
But let’s start with the basics.
What is a Credit Score?
Credit scores are basically three digit representations of your creditworthiness based on the information contained with your credit report.
Your credit report contains a variety of information regarding your personal credit history. The credit bureaus take this data, compile it, and produce scores meant to reflect your merit as a debtor.
Basically, credit scores are meant to represent the likelihood that you will pay back your debts—and do so on time. This makes this a major focal point for lenders who are considering extending credit to you for a car, credit card, or loan.
Not only does your credit scores help dictate whether or not you get approved, they also influence how much you can borrow and at what rate you have to pay it back. Your credit scores impact a multitude of financial situations which means it directly impacts your life.
Obviously, you want to score high, but what does that mean?
A “Good” Credit Score
Evaluations from the different bureaus are created based on different criteria. However, the scales are largely the same.
The typical credit score range goes from about 300 to 800. Generally, scores at 700 or better are considered “Good”. With a score of 700 or better, you’ll have access to credit for most purchases. Below that, you can expect higher interest rates or credit request to be denied altogether.
It’s important that you keep your scores as high as possible at all credit bureaus.
The Value of Triple Credit Scores
While it can be confusing, there is actually good reason why we have different credit scores.
There may be a learning curve at first, but once you have an understanding of how your different scores work, the 3 score system actually works to your advantage.
The 3 Major Credit Bureaus
First, there are three national credit bureaus in the United States.
They are called Equifax, Experian, and TransUnion.
Each researches and records the credit histories of most American consumers and compiles the information into individual credit reports.
This leaves you with three reports, one from each bureau. While each credit bureau has it’s own systems and operations, your credit reports should be consistent. In this way, the three-bureau system allows for cross-comparison.
Your different credit scores are based on these unique credit reports. That means you have both a credit report and credit score for Equifax, Experian, and TransUnion.
It is not unusual for a report from one of these companies to contain inaccuracies. This is why tracking all three of your scores becomes so important.
Checking All Three Credit Scores
Identifying all three of your credit scores is the only way to get a comprehensive appraisal of how your credit is portrayed to potential lenders.
Compiling and assessing credit history can be difficult. There are a litany of records and documents that the bureaus have to analyze. Not only is the process tedious, but these records are incomplete or outdated.
It’s not surprising then that some of the data recorded by credit bureaus is incorrect.
In a congressionally mandated study on national credit report accuracy, the Federal Trade Commission found that one in five consumers had errors in one of their three credit reports. Inaccurate credit reports means inaccurate credit scores.
Verifying all three of your credit scores is then an obvious step towards ensuring that potential lenders get an accurate idea of your credit history.
Because lenders have their choice between credit reports and scores, familiarizing yourself with the information provided by all three bureaus can help to put you on the same page as any lender you might be negotiating with.
Obtaining All 3 Credit Scores
You are entitled to request your credit report from each credit bureau once per year.
If you go that route, it means that it may take you a full year to recognize an error in the reporting of any one bureau. This is highly inefficient and potentially dangerous to your financial situation.
Luckily, services such as freescore360.com allow you to monitor all three credit scores for free. They make empowering yourself simple and easy. Once you have your scores in hand, your ability to make the right financial decisions increases substantially.
Knowing and tracking all three scores also makes improving them a lot easier.
How to Improve Your Credit Scores
While there are certainly a variety of strategies to improve your credit scores, the very best advice is simple:
Make responsible financial decisions.
This includes the small stuff like paying bills on time and keeping your balances low. But there are a variety of other things that affect your scores.
Try to keep “revolving credit” use to a minimum. Limit your applications for new credit. And never pay off credit card bills with other credit cards. If your score is below average, you might need to take more calculated measures to fix your credit score.
However, the most crucial thing is to focus on your credit report. Scores are relatively subjective and lenders pick and choose which information they want to take into account.
By focusing on your credit reports, you will inevitably increase all three credit scores. You also make it easier to find potential inconsistencies that lead to differences across your main scores.
Still, finding out your scores and evaluating your credit reports across the different agencies is the only place to start. If you are serious about the security of your financial future, you should go ahead and get started now.