Credit Score – How Important is Your Credit Score? – How to Get Your Score
Low credit scores and credit problems need your attention
Many consumers today don’t understand the importance of personal credit scores and how it affects their everyday lives now and in the future. Some are not aware that credit scores exist, or that credit scores are readily available and accessible online.
Your credit score can determine what you pay for auto financing and leasing, credit card rates, mortgages, and car insurance. It can even affect whether or not are able to rent an apartment. In some states, it may even affect whether you get a job or not.
Currently, the loan and mortgage market has tightened up significantly compared to before the recent recession. Buyers with poor credit who could easily get a new car loan or new home mortgage before are now being turned away or charged high interest rates. It has become more important than ever to have good credit.
Poor credit scores may result from errors or outdated information about you in your credit history reports. Negative information can remain in your report for seven years, bankruptcies for ten years. You should always work to ensure your report is accurate and that there is no incorrect or old data that is unnecessarily holding your score down.
Poor credit can prevent you from being able to take advantage of low or 0% new-car loan rates and special lease deals offered by car manufacturers.
What is a credit score?
A credit score is a mathematical way of condensing all the information in your credit history down to a single number that represents your credit risk. This way, lenders don’t have to read through your entire detailed credit history report. One number says it all. Credit scores range from 150-900, although there are several scoring models that can have different ranges.
This single number has an incredible influence on how you are viewed by companies with which you want to do business. They judge your risk by your credit score number. The lower the number, the higher the risk.
Be aware that lenders can also use other information, along with your credit score, to make decisions about your credit worthiness. For example, debt-to-income ratio and job stability are very important. Credit reports and scores do not account for this type of information.
Where do credit reports and scores come from?
Credit reports and credit scores are produced by three different companies in the U.S. — Equifax , Experian, and TransUnion . Each company collects its data independently of the other companies, which means data about a particular individual can differ among the three companies. Lenders often obtain consumer credit scores from each of the companies and average them to get a composite score.
Your credit score can vary by as much as 50 points or more between the three credit agencies. For someone with borderline good-bad credit scores, it can make a big difference, depending on which score a lender looks at. Lenders may look at only one score, or they might look at all three.
For those who are applying for an auto loan or lease, there is a special version of your credit score (which you can’t see) called an Auto Industry Option Score, that focuses on your past auto buying or leasing history. It’s possible to have a not-so-great overall credit score, but a good auto credit score that might make the difference in getting approved or not.
What’s a good credit score?
It depends on the lender. Each lender uses its own judgment regarding scores. In general, a score above 740 is considered “super-prime”, 680-739 is considered “prime”, 620-679 is “near-prime”, 550-619 is “sub-prime”, and below 550 is hopeless. Prime scores and above get the best rates. Near-prime scores mean slightly higher interest rates and/or larger down payments. Sub-prime scores can mean loan refusals or interest rates that are as much as 10%-12% higher than prime.
The median score for all U.S. consumers is well above 700 (FICO model), which means that people scores at this level have a well established credit history, relatively few open accounts, low account balances with relatively high limits, no missed or late payments, and no bankruptcies in the last 10 years.
Get your credit report
It is now possible for consumers to get copies of their credit reports from the three credit bureaus in the U.S..
However, what most consumers don’t know is that credit reports do not include the all-important numerical credit scores. Car dealers and finance companies all use credit scores, but may use credit reports too.
It is absolutely essential that you review your credit reports and scores from all three credit bureaus regularly, since your credit score can change frequently. Always know where you stand so that you don’t get surprised when applying for a loan or lease.
If your credit file contains errors, old information, or evidence of credit fraud or identity theft, your credit score may be affected negatively. You should immediately notify the appropriate reporting bureau if any errors are found in your report.
Do you need a co-signer?
Often the answer to a bad credit situation is to simply get someone, family or friend, to co-sign your car loan or lease agreement with you.
However, make sure you understand how co-signing works before you decide to go that route. See our article, Do I Need a Co-Signer? for more details.
If a co-signer is not possible
If you find that you do not have anyone who is willing or able to co-sign for you, we suggest trying for a “sub-prime” car loan at a bank, credit union, or online with a finance service, such as Auto Credit Express, that specializes in providing automobile financing for people with unusual circumstance.
How to get credit help to improve your score
The best way to improve your credit score is to simply pay your bills on time and avoid repossessions and bankruptcy.
Also be patient because your scores won’t improve overnight. It can take as much as seven to ten years for negative information in your credit history to disappear. Get copies of your credit reports and make sure there are no mistakes or old information that should have been removed.
If you find mistakes or old outdated information in your reports, contact the credit bureau immediately and ask that the errors be corrected. They are legally obligated to honor your request, if valid, within a short period of time.