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Do you know that the simple act of checking your credit score is a good way of improving your credit?
Yes, it is because it might mean fraud or an error if you notice a dip in your credit score without any reason. Knowing about this early enough will help you resolve it on time. This way, you are better than the 54% of adults who never check their credit score.
Nowadays, it is easy to check one of the most important scores in your financial life – your credit score. Good knowledge of your credit score is required before you can apply for a mortgage, car loan, or any other loan. This way, you will know if you qualify for such loans and the interest rates that will be applied. In short, your credit score shows how creditworthy you are.
What is a credit score?
This is a three-digit number that typically ranges from 300- 850, and it’s gotten from the analysis of your credit file history. This number will give lenders an idea of how easily you can repay loans or how risky it is to lend you money. Several factors are considered to get your credit score, such as how long it takes you to pay back your loans, payment history, past credit account, length of credit history, and others.
If you have a higher score on your credit, the possibility of lenders agreeing to give you money is high. On the other hand, if your credit score is on the low side, you may not be approved for a loan or mortgage, and even if you are approved, you will pay higher interest. Your credit score is not just important to you but also to your employer, landlord, and insurance companies.
The score range varies depending on the model used to calculate it and also the credit bureau used. There are two models typically used – the FICO and VantageScore models. Again, there are three credit bureaus in use: Experian, Equifax, and Transunion. Most lenders prefer to use the FICO model. At least up to 90% make their lending decision based on the FICO model.
Both models have many similarities. For instance, the score range is 300- 850 in both. Again, payment history is the most influential factor in determining your score in both models. The difference between them comes in how they weigh and rank your credit scores.
How is Credit Score calculated?
To calculate your credit score, the credit scoring model (FICO and VantageScore) uses several different factors that are relevant to your credit profile. In 1989, the Fair Isaac Corporation started the FICO scoring model for lenders, while the three main consumer credit bureaus introduced the VantageScore model in 2006. They use different methods to get your credit score. That’s why the scores may vary slightly.
For FICO, these are the factors they consider in calculating your score:
- Length of credit history: This is the length of time you’ve had credit, and it adds about 15 % to the total score.
- Payment history: This shows whether you have paid your past credit accounts on time, and it adds about 35% to the score.
- Credit mix: These are the various credit products you have, and it includes your installment loans, credit cards, finance company, mortgage loans, and more. This factor accounts for 10% of your score.
- Owed amounts: The total amount of credit and loans you are currently using compared to your utilization rate. The rate is based on the amount of available credit you are using, and it gives 30% to the total credit score.
- New credit: This means the frequency of new credit accounts you open and apply for. It makes up the remaining 10% of your credit score.
For the bureaus that use the VantageScore model, this is what they consider to get your score.
- Extremely influential: Your payment history is the most influential aspect of your score.
- Highly influential: The percentage of credit limit used is the next thing they consider.
- Highly influential: Age and type of credit are other highly influential factors.
- Moderately influential: This is where the total balances and debt that you have been added.
- Less influential: Your available credit is one of the less influential things they consider.
- Less influential: Another thing they consider to be less influential is your recent credit behavior and inquiries.
So which one should you check? Both are important, and it is good to check both when you want to know your credit score. This is because you don’t know what your potential lender will use, and so the best way to get an accurate view of your score is to use both models. Besides, it is free to check your credit score, so go ahead and use the two. It helps you to make better decisions on your finances.
As many people erroneously believe, checking your credit score will not negatively affect your score. Other things that will not negatively impact your score are your race, age, income, marital status, retirement account balance, religion, home equity, nationality, net worth, education, gender, political affiliation, employment history, occupation, residence, employer, etc. or total assets. These are all misconceptions. Constantly monitor your score, as it has many benefits.
So how do you check? Are there tools that can help?
Thanks to technology, you now have tools that will help you to track, monitor, and easily check your credit score. Here are eight tools that will aid you in staying on top of your credit.
This tool comes from the organization Experian, one of the three main credit bureaus that monitor changes in your credit profile. They offer advice on the changes in your credit health, analytical tools, credit reports, and consumer services for clients across the globe.
Experian has its corporate headquarters in Dublin, Ireland, and offers free and paid versions of its app. With their free version, called the Creditworks Basic, you will see your Experian credit report and FICO scores once a month. In the paid version, called Creditworks Premium, you will be provided with a complete package that includes credit monitoring.
Best feature: You get your monthly FICO score which is updated every 30 days based on the information in your Experian credit report.
This tool is from Equifax, one of the leading credit data providers around the globe with millions of customers. With headquarters in Atlanta, Georgia, Equifax has offices in different countries worldwide and is used for credit reporting worldwide. With this tool, you will get a free annual credit report each year. They have other plans that range from free to $14.94 monthly.
Equifax gives you access to free credit reports from each of the three leading credit bureaus each week. You get access to your credit report once every three months or when something new has been added to your report.
Best feature: You can also use Equifax to check the credit score for a business through their services known as Business Credit Express.
Chase offers a free tool to help you with your score called the Chase Credit Journey. With this tool, you will be notified if your data is breached or exposed on the dark web and receive alerts to help protect your identity and credit.
Chase tool also gives you insights you can use to build and maintain your credit. To access the tool, you need to log in to your Chase online account, and you will see your credit score prominently displayed on the homepage. The free score on Chase Credit Journey is updated weekly. The score you get from Chase is the VantageScore 3.0 by TransUnion.
Best feature: They give you identity theft protection at no cost.
Creditwise is a free tool that you can use to track your credit offered by Capital One. You don’t need to be a customer of Capital One before you have access to this tool. It is a unique service that provides a weekly credit score through Transunion, which is better than the recommended monthly check.
With this tool, you will also get a credit simulator tool which you can use to test the various scenarios you can improve your score.
With Creditwise, you are provided with a weekly VantageScore credit score based on the information in your TransUnion credit report. Even though this is not a FICO score, it is not ideal, yet it’s better than nothing as it gives you an overview of your credit life.
Best feature: They are solely focused on monitoring your credit score and credit report.
Credit Karma is a free tool that is focused solely on credit. This tool helps you get your credit utilization rate, the age of your credit account, and more. It can also give you some advice on where to make some positive changes and how to make them. These positive changes can bump up your score and tell you several ways to avoid bringing it down.
Credit Karma works with two of the three credit bureaus, Equifax and Transunion, to provide you with free credit scores and credit reports. It uses VantageScore 3. 0 scoring model to calculate your credit score.
Best feature: This app also makes a credit dispute tool and credit approval estimate available to you.
This tool has both free and paid variations. With the free feature, you will get monthly credit score monitoring updates. In comparison, the paid membership gives you additional tools like 24/7 live support, identity theft monitoring, and more frequent credit scores. Credit Sesame will give you access to your VantageScore directly from Transunion.
It gives you personalized tips based on your credit goals and profiles. There are options you can use to lower payments if you pay more in fees and interests using this tool. This app also provides credit monitoring and security alerts in case your profile is compromised.
Best feature: Credit sesame has $50,000 in identity theft insurance which covers documents and legal fees.
This is another free tool you can use to check your credit score for free. You can use Etmoney to know how good your score is, get insights, unlock loan offers matching your score and check your score in 30 seconds. All you need to do is to add your name to the app, verify your mobile number, and your report is ready.
This tool comes from India’s largest integrated personal finance platform and works with the credit bureau, Experian. You can also use their android app to check your credit score.
Best feature: Get your score with just your mobile number and name.
With ClearScore, you will get free identity protection and be able to check your credit score for free. You will also be able to find great deals on credit cards and loans for you and also check how likely it is for you to be accepted before you apply. This way, you will know what lenders see when you apply for credit.
They update your credit score every month depending on when you register. You can also use their timeline feature to see how much your score has developed over time.
Best feature: Their report gives you details about your score, credit account details, and more.
Things that can affect your credit score
With these tools above, you can easily check your credit score any time you want. It’s essential to check your score often as it helps you manage your financial life better. Many people do not check because of an erroneous belief that checking the credit score causes your score to drop. On the contrary, checking your score is a soft pull, so it doesn’t negatively affect your score. Here are some of the things that can affect your credit score.
- Non-repayment or late repayment of your credit. When you miss a payment on your credit, even if it is only once, your score will be significantly impacted.
- A good mix of a diverse portfolio of credit accounts, including student loans, car loans, mortgages, credit cards, and other credit products, affects your score. The different credit products raise your score, indicating that you can manage a range of credit very well.
- The total amount of revolving credit you are currently using is divided by the total of all your revolving credit limits. The ratio gives a good idea of how much you are owing.
- The number of new accounts you’ve opened and the number of hard inquiries on your account are other factors that affect your score. Too many new credits accounts indicate risk, and so your score will be low.
- The age of your oldest credit account, the age of your newest credit account, and the average age of all your accounts are used to indicate how long you’ve held a credit account.
- Keeping your credit utilization low helps your credit score, while a high utilization negatively impacts it.
- Multiple loan applications in a small time frame also affect your score.
A word of caution on checking credit scores online 👩🏫
One of the best things you can do for yourself is to know your credit score. A good credit score is essential for financial stability, and you need to know your score before you make a major financial decision. You can get your score for free from the three major credit bureaus using the tools above.
While it is good to check your credit score often, you have to apply caution, especially when checking online. You shouldn’t put your details on every website you see online, which claims to help you check your credit score. You might unknowingly put your financial information in the hands of hackers or identity thieves.
Make sure you use approved and recognized tools like the ones listed in this article.