Understanding Credit Scores
So what is a credit score, anyway?
Your credit score, which is a number between 300 and 850, indicates how well you manage your debts and how likely you are to repay a loan on time. You can think of a credit score as an indicator of financial well-being, particularly in terms of qualify for a mortgage.
Credit scores are different from credit reports – it’s easy to confuse the two when they have such similar names! Credit reports are statements from the three credit bureaus: ExperianⓇEquifaxⓇ and Trans UnionⓇ. They contain information about your credit activity and your credit history, including how you have repaid your debts to your creditors in the past.
Lenders will request your credit report from one or more of the credit bureaus to assess the risk of lending to you. They will use credit reports to determine if you meet the terms of an existing credit account.
FICOⓇVantageScoreⓇEquifaxⓇ and ExperianⓇ develop credit scoring models. Credit score models are software programs that analyze credit reports to generate credit scores. All credit scores are determined using similar criteria, and lenders can use all four types of scoring models. However, FICOⓇ has long been the dominant company in the industry and takes into account information from all three credit reporting agencies.
Even if you pay the same bills, have the same number of loans and control your credit cards, your credit score may change from month to month. That’s why it’s important to request a free copy of your credit report from each of the three major credit reporting agencies once a year at AnnualCreditReport.com. This helps you monitor your credit score each year and helps you find errors in your reports. You can also get your credit report by calling (877) 322-8228.
You can also get your free VantageScore® credit score and report from our friends at Rocket HomesSM 1.2.
You don’t want to be turned down for a mortgage because of a mistake one of your creditors made, like mistaking your name for someone else’s. If you find a mistake, file a dispute with the creditor and the credit bureau to get it fixed right away.
You may also get your credit report more frequently if you have been denied credit, are on welfare, unemployed, or have found your credit report to be inaccurate.