A recent study by the Consumer Federation of America and VantageScore finds a large number of Americans know little about credit scores. So, what is credit scoring? According to the Federal Trade Commission, “credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan.”
In general, a high credit score means you are a low-risk to a lender. Persons with high credit scores often receive low interest rates and thus the item you purchase will cost less over the life of the loan. On the other hand, a low credit score means you are a high-risk to lenders. Persons with a low credit score will often receive higher interest rates or may be denied a loan altogether.
Your credit score is based on the information contained in your credit report so it is important to be sure the information on the report is accurate. You may receive one copy of your credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion) for free within a 12 month period. You may order all of the reports at one time or you can space them out throughout the year. To order your free credit report, visit annualcreditreport.com or call 1-877-322-8228. Keep in mind that your credit report will not contain your credit score; however, you can purchase your score from the credit bureaus for a small fee.
To test your knowledge of credit scores, you can take an online quiz, created by the CFA and VantageScore, at www.creditscorequiz.org. To learn more about credit scores and credit reporting and for tips on how to improve your credit score, you may wish to visit the FTC’s website or your BBB’s website and check out the related posts below.