It can be the difference between getting a house or living at Mom’s, so you better know how to check your credit score for free.
Your credit score is your personal key to your financial life. It is the difference between getting a house or renting a room from a friend. It is the difference between paying 2% or 30% on your credit card purchases. It has the power to dictate your entire life. Unfortunately, there is a ton of misinformation around credit scores, credit reports and credit bureaus and what they mean for you. Sit back for the next few minutes as we help demystify your finances and how to check your credit score for free.
What is a Credit Score?
A credit score is a three digit number that is generated by a complicated mathematical algorithm that uses the information found in your credit report. It is designed to give potential lenders (like banks) a snapshot of your financial life and how responsible you are with money.
While there are numerous credit scoring agencies, The FICO credit score is the mother of all credit scores. In fact, FICO says “90 out of 100 financial institutions in the U.S. use FICO scores in their decision-making process.”
What’s A Credit Report?
Your credit report is a digital file that contains all of the information that lenders and businesses you have worked with financially have regarding your financial history with them. It is essentially the “report card” of your financial situation. It is checked anytime you ask for a loan, ask for a mortgage pre-approval, sign up for that store credit card, rent an apartment and often times, when you apply for a job.
Your credit report contains a record of every financial obligation you have or have had for the last 7 years of your life. It includes whether each of those accounts payments were made on time, the amount of days of any tardiness, the date your accounts were opened, along with most any other financial information you have ever had. It is all tied to your social security number.
What Makes Up Your Credit Score?
FICO gives a very general idea of how their credit scores are calculated. 35% of your credit score is based on your payment history. 30% of your score is based on the amount of money that you owe to lenders and businesses. 15% of your credit score is based on the length of your credit history. 10% is based on your credit mix. This consists of the type of accounts you have (revolving credit, student loans, mortgage, auto loans, etc.) The final 10% of your credit score is based on new credit. This means applying for credit from multiple lenders during a set period of time – typically 2 years.
How To Check Your Credit Score For Free
Now that you know what a credit score is and how it can impact almost everything in your life, you would think that something so important would be easily accessible whenever you’d like and obviously free, right? Well, you’re only half right. Accessing your credit report used to be a lengthy, convoluted process that involved mailing things in and waiting for responses. You had to be a bit of a detective to get the info you were looking for easily. Due to the difficulties most consumers had, the federal government mandated that the three major credit bureaus each give a copy of their credit report to every consumer each year. To achieve that, AnnualCreditReport.com was created as the official way to get your credit report for free from each of the credit bureaus. Since you are only allowed to get your credit report for free only once per year from each credit bureau, it would be wise to pull them one at a time, spaced out over a year’s time.
Additionally, whenever you are denied for credit of any kind, you are entitled to a copy of your credit report within 60 days. If you are on welfare, are unemployed or your report is inaccurate, you are also allowed a free credit report outside of the government mandated ones.
To get your credit score, Credit Karma will give you an estimated score and a general picture of your credit reports. Their services are free but they make no claim to having 100% accuracy. They offer an amazing credit monitoring service which will alert you to any changes as they happen. This allows you to stay on top of your credit score and puts you in a much healthier position.
Credit.com also offers a free credit score that is updated every two weeks. Additionally, many major credit cards are now offering their customers access to their credit score whenever they choose to. Check your credit cards website to see if they offer this incentive.
As with most things, responsibility is the key. Keep in mind that with anything you are charging, it is being monitored and compiled into an algorithm that can have you paying much more than you would otherwise. If you stay on top of your credit report, make wise financial choices and know how to check your credit score for free, you’ll be in a much better financial position than you could have been otherwise.
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