Checking your credit score is an important part of managing your financial affairs. It is simple to do and can be done online.
Question: What exactly is my credit score?
Answer: Up until the 1970s, each lender would perform their own credit scoring which led to major inconsistencies from lender to lender. Sometime in the 1970′s, the Fair Isaacs Company created the first standardized credit scoring system in order to help remove those inherent inconsistencies. The system has since become known as the FICO score and the formula has been widely adopted by the largest credit reporting agencies in the U.S.
FICO Scores are basically calculated five categories of credit data. The weight of each may vary but the five categories are as follows:
• Account payment history
• Balances owed
• Length of credit history
• Number of recently opened accounts
• Types of credit utilized
It should be noted that for some people, a given factor will have more weight than it does for someone else. Also, each reporting agency may use slightly different variations of the basic formula.
Question: Why do I need to check my credit score?
Answer: There are a number of reasons why you need to keep close track of your credit score. Your credit score not only affects your ability to obtain a loan; it affects much of your financial life.
Insurance companies may run your credit report and a poor score will affect how much you pay for insurance or even result in your being denied coverage.
More and more employers are checking credit as part of their hiring practices. In this economy it could be devastating to lose a job over a poor credit score.
Checking your credit score will also enable you to keep track of possible errors and suspected identity theft. Knowing what is going on with your credit score will allow you to fix any problems before they affect your ability to get that job, loan or insurance.
Keep in mind that the credit reporting agencies are simply using the personal details and figures that your lender has forwarded to them. They do not check its accuracy unless you request a copy of your credit report and find it to be inaccurate.
Remember that it will take time to clear up any issues you find on your credit report. It is therefore advisable to check your credit annually and a few months before you plan to obtain new credit.
Question: How do I go about checking my credit score?
Answer: Checking your credit score is simple. It can be done over the phone, by mail and even online. All you will need to do is simply answer a few quick questions that are designed to show that you are the person whose credit history/FICO score is being requested.
These questions will include your name, address, Social Security number, and date of birth. As part of proving you are who you say you are, you’ll also need to supply prior addresses and to disclose some item of financial information that only you would know. This might be, for example, the amount of your mortgage payment.
Once you have established your identity, you will get instant online credit report access. If you prefer, you can ask that the information be mailed to you.
Question: What will it cost to check my credit score?
Answer: You are entitled, under the provisions of the Fair Credit Reporting Act, to receive a free credit report each year. The major credit reporting agencies (Experian, TransUnion and Equifax) have in cooperation with each other built a website for this purpose. The site is http://www.annualcreditreport.com. This is the best way to go unless you are having specific difficulties that require you to check your credit report more often.
Question: What if I need to check my credit report more often?
Answer: If you have specific issues such as errors, possible identity theft etc, you may wish to enroll yourself into a credit monitoring system. For a small monthly fee, these companies allow you to receive your FICO score for free as often as you need it.
Keep in mind that you are also entitled to an additional, current copy, of your credit score any time you are turned down for a loan or line of credit. In such a case, you will receive a letter informing you of the credit decision and giving you the information you will need to make that request.
In closing, anytime you are notified that your credit information was “hacked” (such as a bank or credit card that had its online data compromised) you will be offered free credit protection for a year or two. It may be in the fine print of the letter but it will be there. Take advantage of that free offer, it will not only protect you from the ramifications of that breach but will give you complete credit protection.