Once upon a time, a long time ago, people borrowed money only as a last resort when all other monetary avenues had been exhausted. Bankers approved loans based upon such things as the last name of the borrower, or perhaps the banker knew a distant uncle of the borrower, or maybe the banker and the borrower attended the same church.
Lending money based on such subjective criteria was commonplace, and often finalized based upon a handshake or a very simple signed promissory note that basically, and simply, said “I promise to repay this debt in full”.
Many years, and many bank failures later, a more objective system for assessing the credit-worthiness of a loan applicant has emerged: the credit score scale. Credit scoring is basically a uniform system of assessing a person’s credit history and assigning a numerical value to certain factors of each item. Factors considered and scored include (but are not limited to):
-Amount of unsecured debt (such as credit cards);
-Number of instances that a payment was late by 30, 60, or 90 days (or more);
-Any items that have been placed with a professional collection agency;
-Ratio of total unsecured debt to household income;
-Ratio of total debt (secured or unsecured) to household income.
So How Can I Obtain a One Time Credit Score Report For Free?
It is possible to obtain a one time credit score report without paying the customary fee:
1. Go to www.annualcreditreport.com
2. Enroll in the “free trial membership” that will be offered, and which includes a free report of your credit score.
3. You will be asked to provide credit card information, but your credit card will not be charged if you decline to continue the service once the free trial membership period has expired.
4. You will receive your credit score – completely free!
Remember – a good credit score is as valuable as money in the bank. Protect your credit score as you would protect your cash, and enjoy a great financial future!
Understanding How Your Credit Score Impacts Your Financial Future
The credit score scale ranges from the lowest score of 300 to the highest credit score of 850. The higher the score, the better your chances are of obtaining credit. A credit score in the 700’s range, for instance, is considered to be a very good credit risk, and usually has no problem securing loans and other forms of credit at the market’s lowest interest rates.
Conversely, the lower the score, the riskier the credit applicant becomes in the eyes of a potential lender, and the higher the interest rate may be if the credit application is not declined altogether. A credit score that is too low for compliance with a bank or lending institution’s loan policy will almost always result in the applicant being denied the loan or other credit for which he is applying.
It should be noted that the current market conditions play a role in what lenders consider to be a “good” credit score. Before the economic collapse in 2007, a credit score in the 650 range was considered to be a “good” credit score. After the multiple bank failures that occurred that year, tighter lending regulations were imposed upon banks and credit card companies that changed the perception of the credit score. For the best interest rate offerings today, lenders are looking for a credit score of at least 720.
Can I Run My Credit Report More Than Once Per Year?
The answer to this is not just a “yes”, but a resounding “absolutely”! In fact, it is a wise consumer who keeps his or her thumb on the pulse of his or her credit score to make sure that it is healthy.
Many times, credit reports contain errors that can adversely affect your overall credit score. Perhaps the credit report is showing an outstanding balance remaining on a loan that you paid off some time ago. Or, it may erroneously classify secured debt (such as a mortgage) as an unsecured debt (such as a credit card). Excessive debt, especially unsecured debt, can drive down a credit score. So, before attempting to repair a less-than-great credit history, obtain a copy of your credit report and score so that you can see exactly what is being reported.
How Much Does it Cost to Obtain a Copy of My Credit Report?
Fortunately, thanks to the Fair Credit Reporting Act, the law provides that anyone may obtain a free copy of his/her credit report every 12 months. A person is also entitled to a free copy of his or her credit report and subsequent score any time the person was denied credit based upon information provided via credit report. When a loan, or other credit, application is denied, the lender must provide the denial in written form, and advise if any part of the credit decision was based upon a credit report. If a credit reporting agency is used for obtaining a person’s credit score, the contact information for the reporting agency should be included in the letter of denial as well. The “Big Three” agencies used for reporting consumer credit practices are: Equifax, TransUnion, and Experian.
How Do I Go About Obtaining This Information?
If you have not been turned down for credit, and you have not seen your credit report within the past 12 months, the steps to follow are:
1. Go to www.annualcreditreport.com and follow the onscreen instructions; or,
2. Call (877) 322-8228 to order your report by telephone; or,
3. Complete an Annual Credit Report Request Form and submit through regular mail to:
<i>Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281</i>.
You may order a separate free credit report from each of the reporting agencies of Equifax, Experian and/or Transunion shown above, or you may ask for a consolidated credit report that contains all of the information in one report. The law provides that you may have a free copy from each of the agencies once annually. One caveat that should be mentioned, however, is that this free credit report does not automatically include one’s credit score. To also obtain one’s credit score, a fee is usually charged.
Remember, a “credit report” is a report of a person’s credit history, borrowing practices, repayment history, and overall volume of credit whether loans, credit cards or other type of debt, and how the loans are secured, or whether they are unsecured.
A “credit score” is a compilation of the information contained in a credit report, with points assigned to various components in the report.