What Is a Credit Score and Why Is It Important?
Are you ready to apply for a personal loan, auto loan or mortgage? You might question what a credit score is and why it’s important when applying for these loans.
What is a credit score?
A credit score is a three-digit number, ranging between 300 and 850, designed to reflect the likelihood you will pay your bills on time. Credit scores are calculated using data from your credit reports, containing your payment history, if you have any debt and the length of your credit history. Having a higher score means you have been paying your bills on time and shows the responsibility you have, which will make lenders and creditors more confident when deciding your request for credit.
Credit score ranges:
- 300-576: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Why is a credit score important?
When you’re ready to apply for a loan, your credit score will be very important. Those with higher credit scores generally receive better credit terms, which could include lower monthly payments and less interest paid over the life of the loan.
Who doesn’t want to save a little money each month if they can?
How can I check my credit score?
Creditors, including credit card issuers, generally must disclose your credit score if they use the score. Mortgage lenders also need to disclose your score when they check your credit score to approve a mortgage loan. Credit reports are not required to provide a free credit score. However, you should check your credit report to make sure that it is correct and up to date since your score is based on this information.
You can receive one free copy of your credit report every 12 months from each of these credit reporting agencies: Experian, TransUnion and Equifax. Review your information regularly to help you catch signs of identity theft early. Get your free reports here!
How can I improve my credit score?
If your credit score is not where you want it to be, there are many ways to help improve it over time. Pay your bills on time (setting up automatic payments using our online banking is the perfect resource to help you pay on time every month), pay off any debt and keep your credit card balances low. Do not close any unused credit cards if they are not charging annual fees, do not apply for new credit and dispute any errors you find on your credit reports. The sooner you begin taking steps to improve your score, the quicker it will recover.