The average credit score of Americans according to the FICO scoring model is 711. This is considered “good” credit, with a score over 720 considered excellent.
However, 16% of consumers have a “very poor” credit rating, while 18% of the population only has a “fair” credit score.
When you have bad credit, it can impact your ability to be approved for loans, apartment rentals, and more. On top of that, it also means that even if you do get a loan, the terms won’t be particularly favorable.
Are you wondering how to check your credit report and what you need to know about your credit score? Let’s dive in to all the essential details.
What Is a Credit Score?
A credit score is a number that usually ranges between 300 and 850. Your particular credit score results from analyzing a number of different factors in your credit file. This number is used by lenders to assess your ability to repay loans and potential credit risk.
There are two primary models used to come up with your credit score, which is VantageScore and FICO. There are three credit bureaus that pull those scores, which are TransUnion, Experian, and Equifax.
Your credit score will fall within a range that tells you whether your credit is bad, fair, good, or excellent.
How Credit Scores Are Calculated
The credit scoring model used will determine how your credit score is calculated. Some of the key factors that are considered by Vantage Score and FICO include:
- Payment history
- Amount owed
- Length of credit history
- New credit
- Credit diversity
It is commonly recommended that you check both your VantageScore and FICO credit scores. Doing so can ensure that you get a full picture of what lenders see when they look at your report. It’s free to check your credit score and your annual credit report, and it makes sense to look at both since you never know which one lenders are using.
Which Factors Don’t Impact Your Credit Score?
Sometimes consumers believe that certain things impact your credit scores when they actually don’t. This can lead them to focus on the wrong things when they are trying to improve their credit.
One of the most common misconceptions about credit score factors is that information about your wealth is relevant. Actually, things like net worth, home equity, retirement account balances, and income don’t count towards your credit.
Your credit score is also not impacted by identity considerations like gender, religion, marital status, or race. Additionally, your occupation, employer, and information about your job aren’t relevant. However, lenders can look at information about your wealth and employment when they are considering your application.
The Difference Between Credit Scores and Credit Reports
Checking your credit score is not the same thing as getting your credit report. Your credit score is simply the three-digit number that helps both creditors and lenders gauge your credit health.
On the other hand, your credit report doesn’t have your credit score on it. Instead, it focuses on the credit activity that is used to determine your credit score.
How to Check Your Credit Score
It is easier today than it has ever been before to check your credit scores for free. Most issuers of credit cards provide free access to credit scores to their cardholders. Some provide free VantageScores, while other provide free FICO scores.
One of the easiest ways to check your credit score is by logging into the website of your credit card issuer. You can then navigate to the section regarding your credit score. You will usually find that there is a dashboard that presents both your score and the factors that are impacting your score.
How to Check Your Credit Report
You are allowed one free annual credit report from each of the credit reporting countries in the United States. The only website that is authorized for free credit reports according to the Federal Trade Commission is annualcreditreport.com.
Why Should You Work to Improve Your Credit?
Maybe you live in a cabin in the woods that’s completely paid off and you have no need or interest in taking out credit or loans for the rest of your life. If this is you, then maybe it doesn’t matter to you too much to improve your credit. For the rest of us, though, our credit scores can have a serious impact on important aspects of life.
Here are just some of the benefits of having the best possible credit score:
- You have a better chance of getting approved for a loan or a credit card
- You can lock in lower interest rates for loans and credit cards
- You can get approved for higher limits
- You can have more negotiating power
- You can get better car insurance rates
- You can get approved for apartments or rental houses easier
- You can get a cell phone on contract without making a security deposit
- You can avoid paying security deposits on utilities
It is more than possible to survive with bad credit, but it’s not cheap and it isn’t always easy. Your financial life can be greatly benefited by a good credit score. With a good credit score, you will save money over time in a way that can really add up.
On top of that, it can simply make your life easier. In a competitive rental market, the last thing you want is a bad credit score justifying a landlord accepting someone else’s application over yours.
Credit Repair: How to Fix Bad Credit
Your credit score isn’t something that is written in stone. It continues to change as you build more credit history. For that reason, there are a number of things you can do to fix credit that is unideal.
Not sure if you need to fix your credit? Here are why you should work to repair it.
Check Your Credit Report
Requesting your credit report and looking it over can help you understand what lenders are seeing when you apply for credit. You can also look at your credit score on the website of your credit card issuer or order one for free from one of the credit bureaus. This information generally lets you know which factors are more impacting your score.
You will also want to look for incorrect information on your credit report. You can file a dispute with the credit reporting agency that issued the report where you found a mistake. You will also want to contact the particular lender who has reported information that is untrue and ask them to fix their records.
Improve Your Payment History
The most important part of FICO scoring models is your payment history. Your credit score can be reduced by late and missed payments. Additionally, collections and bankruptcies can damage your score significantly. These types of pieces of information can continue to impact your score and stay on your credit report for between seven and ten years.
The timing of your missed payments and the size of your debt are usually taken into account when your score is calculated. This means that, usually, the more recent your missed payments are and the bigger your debt is the worse your score will be.
By paying your bills on time and bringing accounts current, you can help to improve your credit score.
Learn Your Credit Utilization Ratio
Another important factor is your credit utilization ratio. This is a comparison of how much you owe to how much credit is available to you.
It can negatively impact your score if you have a high credit utilization ratio. It is typically suggested that you keep your credit utilization ratio below 30%. However, there aren’t specific guidelines except that you lower this ratio, the better off your score is.
You can do a number of different things to help get a more favorable credit utilization ratio. These include:
- Starting to pay off the balances of any accounts you have
- Use a personal loan to consolidate your credit card debt, which isn’t used to calculate your credit utilization ratio
- Increase the amount of total available credit you have by requesting a credit limit increase on an existing card or opening a new credit card account
It’s important, though, to make sure that receiving more credit doesn’t just lead to you going into more debt. The point is to have a low ratio of debt to credit extended to you. If you end up taking on more debt, this won’t help your credit.
Take Into Account the Number of Accounts You Have
Your credit score is also impacted by how many different accounts you have and how much you owe across them. It can be beneficial to pay off some of your accounts if you have debt across a large number of different accounts.
Many people who have accrued debt in the past have a goal of paying down their credit card debt. While it’s great to not be carrying any debt at all, it can be worthwhile to keep your accounts open even if you aren’t using them. It can hurt your score to close accounts by increasing your credit utilization ratio and eliminating available credit.
Consider Your Credit History
Another factor that impacts your credit is the age of your oldest credit account. On top of that, they also consider the average age of all of your accounts together. This means that people who have longer credit histories benefit more from those who don’t.
For this reason, you’ll want to think about your credit history before you close any accounts. Even if you don’t plan on using a card anymore and you have paid off your account, it can make sense to leave it open.
If you have a problem with spending beyond your means, however, maybe it does make sense to close the account. You’ll want to take into your personal financial situation and spending habits, therefore, to make a decision that works best for you.
Make an Informed Decision Before Getting More Credit
It can make you seem risky to lenders if you open a number of credit accounts in a short period of time. This can therefore negatively impact your credit score. Before you open a new credit card account or take out a loan, you might want to think about how this could ding your credit.
Your inquiries can be grouped together and counted as one inquiry when you are applying for mortgages and other types of loans, however. The newer an inquiry is, the more impact it has on your score. These only show up on your credit report for two years after the inquiries were made.
Use a Credit Repair Company
There are also credit repair companies you can hire to help deal with your bad credit. They know the ins and outs of the industry and can work on your behalf to improve your credit. It’s important that you find a reputable company you trust to do this work for you, however.
You can learn about some of the best credit repair companies here.
Are You Looking to Repair Your Credit?
At Pinnacle Credit Repair, we understand how important it is for your credit report to reflect your worthiness as a borrower. Our number one priority is customer satisfaction and we hold ourselves to the highest standards of credit repair.
Once you have learned how to check your credit report, you can begin the process of repairing your credit. With our help, credit repair can be stress-free and easy.