Each year you’re entitled to a free credit report from each of the three major credit bureaus, TransUnion, Experian and Equifax, in accordance with the Fair and Accurate Credit Transactions Act (FACT Act). Reviewing the reports is a smart idea to make sure your information is in order and their are no mistakes. Order your free report from AnnualCreditReport.com. Note: Credit scores are not provided on the free reports and must be ordered and paid for separately.
What is a Credit Score?
A credit score is different from your credit reports. According to Wikipedia, a credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced from credit bureaus.
Who Checks Your Credit Score?
Your credit scores and reports are constantly evaluated. Here are a few examples.
- Lenders want to assess the risk of loaning money to you and the likelihood of you making payments
- Credit card companies check your score when you sign up for their offers.
- Home and auto insurers review your score to assess risk before insuring you.
- Utility companies check your credit as well because many people forget to pay their bills and eventually have their utilities turned off.
- Employers want to know you better by exploring your financial track record.
- Landlords want to insure you have a solid payment history before letting you rent from them.
What Causes Your Credit Score to Decrease?
Do you know what causes your credit score to decrease? A lot of people don’t, which is why their credit score isn’t in good shape. If you know what causes it to decrease, you can take steps to improve it or avoid the below most common examples.
- Payment History – Your credit score can drop by more than 100 points for just a few missed payments. Repairing it takes time and consistent on-time payments.
- Amount Owed – Too much debt can hurt your score. It’s best to pay off your cards each month.
- Level of New Debt – Signing up for too many credit cards in a short period can hurt your score.
- Closing Accounts – Don’t close your accounts before they’re paid off. Also, consider cutting up credit cards and leaving the account open.
- Length of History – Long standing and healthy accounts helps your score the most. It’s not wise to open a card and close it after a few years even if it’s in good standing.
- Fines – Your score can be impacted if for example, a parking ticket, is turned over to collection agencies. Deal with fines and tickets timely.
- Bankruptcy – A bankruptcy does the most damage and stays on your report for many years. It shows you couldn’t make your debt payments.
At the very least you should get your credit free credit reports each year from AnnualCreditReport.com. If you want more peace of mind, you can consider signing up for a service, such as GoFreeCredit.com, that provides your credit scores and credit monitoring that alerts you of changes to your credit report and any suspicious activity.
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