What You Need to Know About Your Credit

One of your most important assets is something you may not even think about much – your credit score. Your credit score affects your ability to purchase a home or refinance. But even if you don’t plan to purchase or refinance in the near future, you should still consider the importance of your credit score and keeping it in good shape.

Your credit is used to determine what types of loans or credit can be extended to you, whether you will receive approval for a loan, and what interest rate will be extended to you. The better your score, the more appealing the mortgage type and the interest rate.

Understanding your credit:

Three privately held national companies collect information about your credit – Equifax, Experian and Trans Union. Credit scores are based on a scoring system called the FICO model, which ranks credit on a scale of 300 (lowest score) to 950 (highest score). The higher the credit score, the less probability of an individual defaulting on a loan. So, lending organizations prefer borrowers that have higher credit scores.

Credit bureaus collect information, beginning with identifying characteristics, such as name, address, social security number, your employer, etc. They also collect information on debt and payment history on a variety of loans – credit cards, student loans, car loans, and consumer loans. In fact, most companies or businesses that extend loans supply the credit agencies with payment information.

This information is compiled along with any previous history of collections, information about tax liens, judgments and bankruptcies. Another important piece of information that is gathered is any inquiries for new credit – any applications for credit cards or new loans.

Consumers and their credit information is protected under federal laws. As an example, your credit score can not by affected by such factors as race, religion, gender, marital status, age, nationality, or whether you receive forms of public assistance.

Your credit score is a vital part of your financial portfolio. So if you are looking for ways to improve your credit and would like some advice, check back for my next post on how to build your credit score.

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