You may be asking how can I check my credit score for free – but before that you may be asking why would I want to check my credit score? Well, knowing your credit score can save you the anguish of getting turned down. If you’re applying for a loan and have a low credit score lenders could reject your application right away.
- There are 3 major credit bureaus that lenders use to check your credit score
- You can request your credit score for free once a year from the credit bureaus
- There are subscription services that will keep an eye on your credit score
- Knowing your credit score helps you apply for the right type of loan
Why Is My Credit Score So Important?
Your credit history and score tell lenders a lot, especially whether you’re a good loan risk. Your credit history holds information about how much debt you have and what your track record is in repaying that debt. Lenders prefer borrowers with a good credit rating. That’s not to say they won’t lend to you but you may not get as good a rate and/or they may not lend you the full amount that you’re asking for.
Hence, the reason to know your score but not only does it save you disappointment, but knowing your score helps you take action to improve it.
What Is a Credit Score?
If you check your credit score, you will see that it’s a 3-digit number from 300 to 850. You’re in the good range if your score is between 670 to 739 and as already stated, lenders like those scores. They would probably consider you a good credit risk because a good score shows that you have a positive history of paying back your loans or debt.
On the flip side, if your score is between 580 and 669 you will find that getting approval for a loan or credit can be a lot more difficult. IIf the lender does take a chance on you and lend to you your interest rates are higher because they need to protect their interests. The higher rate helps them recoup more from you more quickly. If they aren’t willing to give you a personal loan you may find that they offer you a different type of loan called a secured loan. For this type of loan, you put up your car, home, jewelry, etc., as collateral.
What Other Information do Lenders Use Other Than a Credit Score?
In addition to the credit score, lenders also look at these 4 things:
- Income (from all sources) Many payday lenders require a minimum of $800 income per month. Being self-employed shouldn’t affect your score as long as you can show proof of income
- Whether or not you own or rent your home
- If your job is full or part-time
- The type and size of the loan you’re requesting as well as the length of the loan
Why Is My Credit Score So Low?
There are several factors that can make your credit score low, and they include:
- You currently have too much debt or outstanding credit
- You’ve defaulted on a loan
- You have been late making payments on any credit cards or loans
- Certain types of loans can bring down your score
- Applying too often for loans
If My Credit Score is Bad, What Are My Options?
If your score is not so great, then a secured loan may be the way you need to go using collateral to assure lenders you’re a good credit risk. Remember is you don’t repay a secured loan then you risk losing the collateral that you have put up.
You can borrow from family and friends but could risk damaging an important relationship. The same is true with a guarantor loan when a family or friend with a good credit score guarantees your loan. When your friend or family members do this, they are then liable for repaying the loan if you do not. Hence the concern about hurting your relationship.
How Can I Check My Credit Score for Free?
It’s easier than ever because…
Many credit card companies, lenders, and other financial institutions have begun including your credit score on the statements they send you or make available online. If your statements don’t include your score then go to your online account and it should be listed there.
FICO, a credit bureau will charge a fee to supply your credit score or there are 3 groups that will supply it for free, usually once a year. These are Equifax, TransUnion, or Experian https://www.equifax.com/personal/education/credit/score/how-to-check-credit-score/
There are also services that will monitor your credit score for you and for these you’d pay a subscription fee.
In addition to getting your credit score, be sure to read the report of your credit history because there can be inaccuracies, ones that negatively affect your score. You want to get these cleared up as quickly as possible, especially if you’re about to go for a loan.
Improve Your Credit Score
The good news is that there are several things you can do to improve your score and you can start right now. It just makes plain sense as it increases your chances of getting approval, of getting lower interest rates, and being approved for the full amount that you need. Start today to improve your credit score by:
- Register to vote because lenders use the electoral register as a means of confirming your identity
- Too many lines of credit or loans can pull down your credit score so close the ones you don’t need
- Keep an eye on your debt-to-loan ratio and keep it as low as possible. If you’re not familiar with the term it means the amount of income you have compared to the amount of credit you’re using. Divide your debt by your income to calculate your debt-to-loan ratio. The sweet spot for lots of lenders is 36%. Aim for that.
- If you have many credit cards, including store cards cancel those you don’t use or need and pay down your cards as much as possible.
- Make your loan and credit payments on time
Know how to check your credit scores for free because your credit score and what your credit report says will determine the type and amount of loans you will be approved for. Check for any inaccuracies too and if you have a low score do what you can to improve it before you apply for a loan or credit to increase your chances of approval.