There is a lot more attention being paid to credit scores and the importance of credit history. What you don’t know when it comes to credit, certainly can hurt you. Here are 5 things you may not know about the world of credit and credit scores:
Your FICO Score is the Most-Widely Used Score
Fair Isaac calculates the credit score that is the basis for millions of credit decisions by lenders each year. This highly-confidential formula creates a three digit number based on an individual’s credit history. The numbers range from 300-850. The higher the number of the score, the better the credit. Lenders view high numbers as less of a credit risk than those individuals with a lower number. Lenders rely on the FICO score to make money-lending decision but each lender will use the score in a different manner. There are other credit scoring companies that are used such as VantageScore, which was launched in 2008. This is a joint venture between the three major credit reporting agencies. The VantageScore model uses numbers from 501-990. Interestingly, many people refer to credit scores that are not FICO-related as FAKO scores.
You’ll Need to Pay for Your Score But Not Your History
The Fair Credit Reporting Act requires that the credit bureaus provide consumers with free copies of their credit report every 12 months. Consumers are also entitled to their credit reports when denied credit. However, many consumers do not realize that while they get their credit history information at no charge, they will have to pay the credit bureaus for a copy of their credit history that also contains the three digit credit score.
Credit Reports Go Farther Than Loans
Credit reports used to be limited to money-lending activities. Well, no more. Today, your credit score can be used for consideration in a number of things, including getting a new job. How you pay your bills and manage your personal finances can make a difference to certain employers. Your credit report can also impact your application for cell phones, utilities, and other service provider applications.
Your Credit Report is Not Fail-Safe
Just because the credit report agencies know a lot about you and your creditors regularly submit updates about you, it doesn’t mean that every ounce of information on that report is indeed fact. Essentially, there is still such a thing as human error to consider and anyone who has an active credit report should be monitoring the information that is contained in the history report. Simple mistakes can drag down a credit score unnecessarily. It is a consumer’s responsibility to check their credit report at least once a year and take advantage of the free credit reports available by law.
Everyone Should Be Mindful of Their Credit
As shown in the first four points, credit reports are certainly important and can affect your life in many new areas. While you may not be planning to make a big ticket purchase, such as applying for a mortgage or making a big ticket purchase, you never know what the future has in store or who will request your credit profile. It is best to regularly check your credit reports for accuracy and completeness. Unreported mistakes can cost you a lot these days. Avoiding or careless misusing your credit information will be of no benefit, especially during an emergency.