Get an A+ on Your Credit Score

Over my years as a banker, I have come to understand how credit scores affect several aspects of our everyday life. But for something that matters so much, there are still plenty of myths and misconceptions out there.  Here are some helpful points to understand the credit score world:

What the score means …

Your credit score (sometimes known as FICO® score) is really just a way for a lender to “grade” you on past loan history.  If you’ve made payments on time and haven’t had any negative reporting, then you’re likely to have a “high grade” or score.  The higher your score, the better terms and pricing you’ll get on car loans, home loans, and many other loans and services – including home utility companies and TV and cell phone companies.  Basically any loan or service which requires regular monthly payments can check your credit score to see how likely you are to pay them back.

How it benefits you…

When you borrow or purchase services, your credit score can play a part in what upfront down payment is required and also what interest rate you qualify for.  Remember, the higher the score, the better the rate, so let’s use a home loan as an example.  If your score is “good” (720 or higher), let’s pretend you qualify for 0.50% lower interest rate and less money down than if your score was around a 660. On a $100,000 mortgage, that 0.50% lower rate can be the difference of about $30 per month on your home loan – which may not sound like much, but over the course of a traditional 30-year loan, that $30 per month turns into $10,800! Factor the higher rate onto a larger home loan, or onto one or two car loans or credit card balances, and pretty soon there could be a difference of $100-$200 or more per month on your overall monthly debt payments.

What’s a good score (range)?

The FICO® model has scores that range from 300 to 850, with the higher score meaning there’s a better probability that the score-holder will repay future debt.  Each lender uses the scores differently.  For example, one lender may consider scores greater than 720 to be a good score, but another lender may say that anything over 700 is good.  Here’s how I view the scores:

  • 800-850 Excellent
  • 720-799 Good
  • 680-719 Acceptable
  • 600-679 Needs Improvement
  • 300-599 Serious Delinquency Problems

According to the Fair Isaac Corporation (creator of the FICO® score), 73 percent of the national population have scores better than 700. So, the good news is most people have scores above the acceptable ranges, but if you’re one of the few who needs some improvement, don’t wait to start improving your score - start now.

How to check your credit report…

Now that you know the score range, how can you find out what your score is? The only way I’ve found to get an actual report, which shows all of the accounts and your payment history is from www.annualcreditreport.com.  You have the right to obtain a free report per year from this website.  Unfortunately, your score is not included in this report, but it will allow you to review all of the accounts for accuracy, and will allow you to make sure that no one has made an inquiry without your permission. There are three main credit reporting agencies that will be included in your report:  Equifax, Experian, and TransUnion.  If you find an error from one of those agencies on your report, be sure to report it to that agency so it can get corrected and can help your score.

There are many advertisements online and on TV which tell you that you can get your “Free Credit Report” and that they can help you rebuild your score; however, rarely are the reports free. These “free” websites may also give you their own score or some other score – but be careful because those are not real credit scores that the majority of lenders use.  The only score that matters is your true FICO® score.

In my next blog, I will discuss how your credit score is calculated.