The personal finance topic for the week is about checking your credit score.
It is always a good idea to have a handle on this finance tool as it determines the rates in which you can borrow money for. For example, it may help you obtain a deferred interest credit card that has a 0% promotional interest rate. Or it may allow you to obtain a 0% interest rate when consolidating credit card debt.
Or you simply can get more favorable rates when taking on consumer loans such as a car payment or when buying a home. This is important because the more you pay, the more disposable income is reduced in the budget.
There are sites that you can sign up for to have regular monitoring at a cost. The three credit bureaus that establish credit scores and historical data are Experian, Equifax, and TransUnion.
You can also get regular updates through sites such as Credit Karma, your credit card company or banking institution that is often less-detailed.
You can also go to annualcreditreport.com and get a free copy of your credit report every 12 months from each credit reporting company.
So let’s go through The Score That Matters
Some institutions can have their own credit scoring models; however, the quick and dirty is the FICO score: is it basically a summation of your credit report. It measures how long you've had credit, how much credit you have, how much of your available credit is being used and if you've paid on time.
What Lenders are Looking for in Your Credit History
The important element of credit is the history as this where the full details of your borrowing diary are outlined.
Some of the common items that lenders report on are standard credit cards, including places such as Best Buy’s of the world as well as boat and auto loans, mortgages and so on.
The key pieces they review are:
-The dates an account was opened. -Credit limits and loan amounts. -Payment history and whether or not you have made your payments on time.
-Current account balances
Major Items to Watch Out For
Credit Inquiries - this means that you authorize a lender to obtain a copy of your credit report. Hence, you will have "hard" inquiries, which are your requests for credit, and "soft" inquiries, which are often associated with pre-approval offers that flood our mailboxes.
Bankruptcy and Collections: If you have filed under Chapter 7 bankruptcy it remains on your credit report for 10 years and Chapter 13 bankruptcy is removed after seven years. So as we sum this up it is simple to obtain a credit history and you should be checking it on a regular basis.
There are many instances where information shows up that is bogus and due to human nature, people forget or blow things off. Don't be one of them because a lower score means paying less to borrow money and this a negative effect on your budget.
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