Having a firm understanding of personal credit is a necessary skill for today’s modern American consumer. Credit is a tool that can be used to better your life and enhance your lifestyle. Just like with many important things, when used properly credit can be your best friend, but if it is used irresponsibly credit can make your life extremely difficult. Today many people are interested in how well your credit is, such as: mortgage and auto lenders, banks, utility companies, prospective employers, etc. Having good credit can only help make your life easier and a sub-par credit score will only make things complicated when the time comes to need to use it.
Credit is extremely important because lenders, insurers, employers, etc. might use it to evaluate how people handle financial matters. An example of this is that a lender might look at your credit to figure out whether or not you qualify for a particular loan. An insurance company might also look at your credit to assess your policy eligibility, as well as costs. Employers will even take the time to evaluate your credit to see if you are worthy of working there.
Your credit is evaluated and is based on variables that form a number which is known as a credit score. The different numbers are in the hundreds are based on how well your credit is, and they go from 300 to 850. Each number fits into a criteria scale, such as 599-below is poor and you will have a lot of trouble getting any type of loan, especially a mortgage loan. 600-659 is fair and you might have trouble with lenders being willing to give you a loan. 660-699 is good and you should be able to get a loan, but they will not be at the best interest rate. 700-up is considered very good to excellent. In this range, you can get almost any loan you want and will have a low interest rate. Most people are in the mid-600 score range, which is alright but could always improve.
When factoring credit scores, numerous things are taken into consideration. The more important aspects of a credit score that are looked at include: the number and types of accounts (credit cards, auto loans, mortgages, etc.), amount of available credit vs. how much is used, amount of current debt, and the average age of all of your accounts. All of these factors are other factors that don’t weigh as much as these but are still important. Having a good payment history is the best thing for you if you want to have or keep a high credit score.
When it comes to looking at your credit score, there are a couple of ways to look them up. There are 3 credit bureaus: Equifax, Experian, and TransUnion. All 3 offer 1 free credit report per year, and you can get yours by either calling or looking on their websites. When applying for a loan or other type of credit, the lenders can look it up as well and tell you what it is. This is called a hard credit inquiry, which is a look at your score to obtain a loan. You want to limit the number of inquiries as it shows that you might be looking to take out too much money, and this might raise a red flag and hurt your credit.
There will come a time where we will need to purchase something using credit, whether it is something big such as a mortgage or automotive loan, or something small like taking out a personal loan or paying for something with a credit card. How well your credit score is will dictate how much you can get and your interest rate if you are approved. The credit system has become a large part of today’s society, and if used responsibly, it can be one of your greatest assets.
Mark Scheets is a writer for Total Mortgage services. For over 15 years, Total Mortgage has combined the personal service and integrity of a local lender with low rates, convenience, speed, and know-how of a national lender.
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