It’s easy to get your credit score for free these days. Your bank or credit card issuer may offer this, and there are other options as well. Experian, one of the three major credit bureaus, provides a free credit score and report on www.freecreditscore.com. Credit Karma (www.creditkarma.com) also offers a free score, as well as credit reports from the other two major credit bureaus, Equifax and TransUnion (you must register for an account to get your score).
FICO, who invented the credit score, and the three credit bureaus offer monthly plans that provide your credit score and other features, such as credit monitoring, for prices ranging from $ 10 to $ 40 per months, depending on the level of service. But you probably don’t need to sign up for a subscription service or pay for a credit score.
Know your score. Your credit score is designed to provide lenders with a way to assess the likelihood of you paying off a loan; your score also measures your financial well-being. But not all credit scores are created equal. The two major consumer credit scoring companies are FICO, whose scores are most often used in loan decisions, and VantageScore, a company created by the three major credit bureaus. The latest models for both scores work on a scale of 300 to 850, but the formulas differ and your scores may vary. Typically, a score of 750 or higher is considered excellent, and a score of around 700 or higher means that you are managing your credit well.
Keep in mind that when you get a credit score, the number you’ll see isn’t necessarily the number your lenders will use. Some large lenders have proprietary credit scores that they created for their own purposes, says Matt Schulz, chief credit analyst for LendingTree. Still, free scores you find online or elsewhere offer a way to assess your creditworthiness. In addition, a significant drop in your score could be a sign that you have been the victim of identity theft or that an error has occurred in your credit reports, for example because a lender has reported by error an account payment as overdue. Don’t rely entirely on your score – you should periodically review your credit reports for signs of fraud and to make sure the information used to compile your credit scores is accurate. Until April, you can check your credit report with all three credit bureaus weekly for free at www.annualcreditreport.com. After that, you can do it for free once every 12 months.
Become grainy. Most people know that paying late bills can hurt their score, but it’s only one factor that affects your credit score. The five categories that make up your FICO score are payment history (35% of total), amounts owed (30%), length of credit history (15%), new credit (10%), and membership credit (10%).
The category of amounts owed refers not only to the amount you borrowed, but also to your credit utilization ratio, which is the amount you owe on your credit cards in proportion to your card limits (the ratio is calculated for individual cards as well as globally for all your accounts). Try to keep the ratio below 30%, and keeping it below 10% is even better, says Ted Rossman, analyst at CreditCards.com.
The length of credit history would come into play when, for example, you applied for multiple new lines of credit, such as opening a bunch of retail cards to get discounts on your purchases. This can hurt your score, especially if you have a short credit history. Finally, your credit mix is an assessment of your ability to successfully handle different types of credit, such as credit cards, installment loans, and mortgages.