Credit scores may be the number one most common tool that lenders, banks, landlords, and credit card companies use to determine the level of risk you may pose as a borrower or a renter. Credit scores have become so prevalent within contemporary society now that even employers sometimes check an individual’s credit score before hiring them. This can feel very intimidating for many people but one of the best ways to combat that credit score anxiety may be to know exactly where your credit score is for yourself. This way you will know what a lender, credit card company, or potential employer is seeing when they request your credit report.
If you don’t know yet how to find out what your credit score is, we can help you with that! In this educational blog, we will be laying out how your score is calculated, what free services allow you to check your credit score, and how often you should be monitoring it.
How Is Your Score Calculated?
There are five major factors within your credit report that play into the calculation of your number score. Each makes up a different percentage based on the level of importance. These include:
35% — Payment History
This part of the report focuses on whether you’ve been making all your payments on time. It records any late or missed payments; the more frequent they are, the more of a negative impact it will have on your score. Filing for bankruptcy would also show up within this section of your report as it is technically a public record of non-payment.
30% — Debt to Available Credit Ratio
This ratio represents how much money you owe in total compared to how much available credit you have left over. Having a lower percentage of debt compared to available credit is better for your credit score. This debt to available credit ratio is also known as your credit utilization rate and it is far more important than most people realize.
15% — Age of Credit
How long you have had your credit accounts open plays a big part in your credit score. This section of your report uses the age of your oldest account, your newest account, and the average age of your accounts in order to determine your standing. Overall, the older your credit history is the better this portion of your report will be.
10% — Credit Variety
Each type of credit account carries a different weight to it so having a variety of credit types increases your chances for a higher score. Some of these types include credit cards, mortgage loans, student loans, auto loans, business loans, and others.
10% — Credit Inquiries
Having too many hard credit inquiries, especially in a short amount of time, can negatively affect your credit score. Applying for a bunch of loans or credit cards within a certain amount of time creates an image of desperation and a readiness to take on more debt than you can logically afford.
Free Services to See Your Credit Score
There are now innumerable ways to access your credit score for free because of a big push for public access to personal credit reports in 2005. Since then access to one’s own credit score has only become significantly easier and easier. However, it is helpful to know that there are three major credit bureaus which provide reporting to your possible lenders, etc. These include Experian, Equifax, and TransUnion and the scores don’t tend to vary by more than 10-40 points.
One of the first ways that you can access your credit score for free is through your bank or your credit card company. Some of these institutions offer free online services that make it relatively easy for customers to obtain their credit score without having to request it straight from the big bureaus. And some have even introduced policies where they deliver your free credit score to you every time you get a new bank/card statement.
Another way to find out your credit score is through free third-party websites. One of the most popular ones, especially among millennials who are becoming more credit conscious, is Credit Karma. But a few others include Mint, Credit.com, and Credit Sesame. These sites are easy to use and often offer helpful tips on how to improve your score.
How Often You Should Check Your Score
According to the Consumer Financial Protection Bureau, you ought to check up on your credit score and report at least once a year at minimum. They suggest this to better help you prevent identity theft and never be caught off guard by an application rejection. It’s always a good idea to stay one step ahead of the game when it comes to your financial well-being. Constantly keeping an eye on your credit score is an important strategy for making your financial goals a reality.