• Ann Wood

Why Do You Need to Understand Your Credit Score?

Now that it’s January of a New Year, you will want to check in on your credit score. Many people don’t understand what this score means for them. Your current credit position, your credit reports and credit scores are important indicators of your financial well-being.

Here’s a breakdown:

  • A credit score is a three-digit number representing the likelihood you’ll pay your bills on time. It basically points to a record of how you’ve managed your credit accounts. It is not included in your credit report, rather your credit score is calculated from your credit reports.

  • Your credit report includes information like your name, address, social security number, credit cards, loans, and more.

  • Your credit history consists of the number of credit cards you own, how many loans you have, and if you pay your bills on time.

Different institutions use different models for determining your credit score. That being said, you may have more than one credit score depending on how many of these institutions from which you take loans.


Your credit is important because it affects your ability to get a loan, a job, housing, insurance and more. This information is one of the key pieces of information financial lenders and creditors look at in assessing their lending decisions. Additionally, loan terms and interest rates are determined partially by your credit scores and reports, so it is important to check these regularly.


Understanding and reviewing your credit score gives you an idea of what lenders may see when you apply for credit. You’re entitled to a free copy of your credit report every 12 months from each of the three nationwide credit bureaus. The three credit bureaus are Experian, Equifax and Transunion. Make sure to take advantage of this opportunity to review your information. By monitoring your credit reports, you can continuously check for any errors or inaccurate information.


Beware that checking your credit scores more frequently may incur charges. It may be a good idea to keep track of your credit on your own using banking apps and your credit reports. Taking steps to learn about your credit scores and credit history will make a big difference when it comes time to apply for a loan.


Sources:

1.https://www.equifax.com/personal/education/credit/report/why-check-your-credit-reports-and-credit-score/

2.https://www.consumer.ftc.gov/articles/understanding-your-credit

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