What is my Credit Rating? Why is it important?
If you are like most of us, you probably do not even think about your credit rating until it is time to apply for a credit card, mortgage or car loan. A little known fact is that people with a "good" or "excellent" credit rating can pay a significantly lower interest rate when they borrow money. This wonderful news can mean a savings to you of hundreds or even thousands of dollars over the life of a loan. Why do banks and credit unions give you preferred treatment when you have a good credit rating? Because you have proven to them that you are trustworthy in handling money, pay your bills on time and are responsible for paying back your loans.
What is a credit report and how can I get one?
A credit report is a list of how much credit (money in the bank, equity in your house) you have available, how much debt (unpaid credit card balance, car loan, unpaid mortgage balance) you have and a record of how well you pay your bills in a timely manner.
Get your free credit report - http://www.creditcardbankaccount.com/
What's my FICO score?
The first step to improving your credit rating is to know what your FICO (Fair, Isaac Company; named for the company that created it) score is. Your FICO number tells your lender how likely you are to pay back your loan on time. Your FICO score can range from 300 to 850; the higher the score the better. Your FICO score is not listed on your free credit report but can be purchased from any of the three major credit bureaus listed above, for less than $10. Is knowing your FICO score worth $10? Absolutely. Or if you have recently applied for a loan, your lender may be able to tell you what your score is.
What practical difference does my FICO score really make?
Let us suppose that you have found your dream house and go to apply for a mortgage. If you have an "ok" FICO score of 620 you may qualify for an interest rate of 7.5%. Now if you have an "excellent" FICO score of 775, you may qualify for a lower interest rate of 5.9%. Big deal you say? What if I told you that you could save over $3500 a year (a year!) for a 30-year fixed-rate mortgage on a loan for $220,000. That is a big deal! The average FICO score is 723. You want to aim to have yours be even higher than that and begin to save money on every loan you have.
OK, I have got my credit report, now what?
Go over your credit report with a fine-tooth comb looking for errors and inaccuracies. You may be surprised to find credit cards listed on your report that you no longer use, inaccurately reported late payments, or credit cards listed that you have never even applied for. In my next lesson, we will discuss what to do if your FICO score is less than it could be and how to repair errors and inaccuracies to your credit report.
Get your free credit report - http://www.creditcardbankaccount.com/
