You have probably seen that commercial that asks you if you know your credit score. They give you a range that tells you where your credit score is supposed to be, and they discuss the importance of understanding your credit score and bringing it up to where it should be.
Unfortunately, just knowing your credit score is not enough. First, you need to know what it is and why it should be as high as possible. Until your score hits the maximum, you should always shoot for a higher score. Your credit score is your grade on your credit history. Your credit history can be found in a statement called a credit report. There are three different credit reports and if you are interested in getting a free copy of all three, check out the link below.
Your credit history includes everything you have ever done that has to do with credit. It includes all the loans and credit cards you have and have had in the past as well as if you have paid your bills on time, late, or at all. If you pay all your bills on time, all the time, you will have a good credit history. These bills include everything from your mortgage payments to utility bills. Even just one late payment can have a big impact on your credit.
The credit bureaus compile your credit history into a report and then give it a score called your credit score. Why do they do this? The next time you apply for a loan whether it's a car loan, home mortgage, credit card, or other type of loan, the lender or creditor will request a copy of your credit report. They look at your credit score and more closely your credit report to help them decide if they should loan you the money. They also look at other things such as how much money you make, but your credit report is the most important.
Your credit history is important to them because they want to know how much of a risk you are to them. If you have a history of not paying your bills on time or sometimes not at all, they assume you are going to do the same with their loan, so they don't give you any money. Your credit history will also affect the terms of the loan. If you missed a few payments over the years, they will try to make up for the risk by charging you a higher interest rate or by not giving you as much money.
If you ever think you will need a loan, you must watch your credit. You can get one free copy of each of your credit reports every year. Check the link below for your free copies.