The Facts About Your Credit Score

Having credit is essential to everyday life, but many of us don’t fully understand credit and credit scores. Whether buying a car or purchasing a home, credit affects your buying power. Having easy access to credit goes hand in hand with having a good credit score, so it’s important to know how to maintain a positive credit score and credit history.

The importance of having a good credit score

Your credit score is based on your past and present credit transactions. Having a good credit score is important because most lenders use credit scores to evaluate the creditworthiness of a potential borrower. Borrowers with good credit are presumed to be more trustworthy and may find it easier to obtain a loan, often at a lower interest rate. Credit scores can even be a deciding factor when you rent an apartment or apply for a new job.

How is your credit score determined? The three major credit reporting agencies (Experian, Equifax and TransUnion) track your credit history and assign you a corresponding credit score, typically using software developed by Fair Isaac Corporation (FICO).

The most common credit score is your FICO score, a three-digit number that ranges from 300-850. What’s a good FICO score? For the most part, that depends on the lender and your particular situation. However, individuals with scores of 700 or higher are generally eligible for the most favorable terms and lowest rates from lenders, while those with scores below 700 may have to pay more of a premium for credit. Finally, individuals with scores below 620 may have trouble obtaining any credit at all.

4 Factors that can negatively impact your credit score

A number of factors could negatively affect your credit score, including:

  • A history of late payments. Your credit report provides information to lenders regarding your payment history over the previous 12 to 24 months. For the most part, a lender may assume that you can be trusted to make timely monthly debt payments in the future if you have done so in the past. Consequently, if you have a history of late payments and/or unpaid debts, a lender may consider you to be a high risk and turn you down for a loan.
  • Not enough good credit. You may have good credit, but you may not have a substantial credit history. As a result, you may need to build your credit history before a lender deems you worthy of taking on additional debt.
  • Too many credit inquiries. Each time you apply for credit, the lender will request a copy of your credit history. The lender’s request then appears as an inquiry on your credit report. Too many inquiries in a short amount of time could be viewed negatively by a potential lender because it may indicate that you have a history of being turned down for loans or have access to too much credit.
  • Uncorrected errors on your credit report. Errors on a credit report could make it difficult for a lender to accurately evaluate your creditworthiness and might result in a loan denial. If you have errors on your credit report, it’s important to take steps to correct your report, even if it doesn’t contain derogatory information.

Fixing credit report errors

Because a mistake on your credit report can negatively impact your credit score, it’s important to monitor your credit report from each credit reporting agency on a regular basis and make sure all versions are accurate.

  • If you find an error on your credit report, your first step should be to contact the credit reporting agency, either online or by mail, to indicate that you are disputing information on your report. The credit reporting agency usually must investigate the dispute within 30 days of receiving it. Once the investigation is complete, the agency must provide you with written results of its investigation. If the credit reporting agency concludes that your credit report does contain errors, the information on your report must be removed or corrected, and you’ll receive an updated version of your credit report for free.
  • If the investigation does not resolve the issue to your satisfaction, you can add a 100-word consumer statement to your credit file. Even though creditors are not required to take consumer statements into consideration when evaluating your creditworthiness, the statement can at least give you a chance to tell your side of the story.
  • If you believe that your credit report error is the result of identity theft, you may need to take additional steps to resolve the issue, such as placing a fraud alert or security freeze on your credit report. You can visit the Federal Trade Commission (FTC) website for more information on the various identity theft protections that might be available to you.
  • Finally, due to the amount of paperwork and steps involved, fixing a credit report error can often be a time-consuming and emotionally draining process. If at any time you believe that your credit reporting rights are being violated, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

Did you know that you can check your FICO® Score for free without affecting your score in Elevations digital banking? You can also view key factors related to your score to see how you can improve it, as well as your score’s history to track overall performance. Log in to online banking to get started.

Elevations’ team of CFS* Financial Advisors can help you understand your credit and ways to improve it for your personal situation. Please give us a call at 303-443-4672 x2240 to set up a no-obligation appointment to discuss your credit and how to build good credit.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The credit union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice please consult a qualified tax professional.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.

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