After 30 years of pulling credit scores I am still amazed at how many people (almost everyone) don't know their own credit score with at least one credit bureau! With all of the resources at your disposal it is easier than ever to get and review your credit report and score. However, I have also found that even those that do not understand what really makes up the score. Most people don't understand what the scoring models are looking at to create the number that affects what they are going to pay in rates and or fees for a loan. I think most know that the higher the score the better. But what is a high score and how can you get there or how can you keep it there?
There are two major reasons for reviewing your credit report at least once a year. One is to make sure that what is on that report is yours. In today's world of identity theft it is crucial to make sure that what is on your report is really yours. If it isn't and caught early enough it is possible to obtain relief and assistance from your bank or creditor to erase erroneous information. If you don't catch it and six months or more go by it is likely you'll be stuck with repayment or a charge off, judgment or worse. None are great alternatives. So reviewing your report at least once a year if not sooner is critical.
Second is to monitor your scores so that you'll always be in a position to obtain the best financing terms available at that time. Lenders base their loans on risk. The lower the score the higher the risk. The higher the risk the higher the interest rate and fees. Ironically it is usually the people that need the lower rate and ultimately the lower payment are the ones with the higher risk factors. It is a no win situation. I'm always sad to see someone who works hard, pay their bill on time, but has a low score, finance a car loan at 9-18% when it wasn't necessary. With just a few adjustments on their credit report they could have obtained a much lower rate resulting in a much lower payment.
So how do you manage your credit score and what do the scoring models consider when determining your score? I'll review that in the next section.