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In addition to keeping in the financial know, you may be interested in checking your credit score and report.
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Imagine this: You spend six months saving for a down payment on a new car. Before heading to the dealer to make your purchase, you pull your credit report and credit score to ensure you will qualify for the best loan terms. Your credit score is good, but when you’re offered financing at the dealership, it’s not at the competitive rates you were hoping—the auto lender’s score was lower than the one you pulled on your own.
What you didn’t know before you picked out your new car was that the information that lenders use to assess your creditworthiness may be different from what you will see in the credit reports you pull.
Lenders use different credit scoring models to gauge your risk as a borrower. Each lender chooses the one that best suits its needs, and some use scores that are weighted according to their industry. For example, a mortgage lender might use a different scoring model than an auto lender. Other lenders use a blend of the scores that are assigned to you by the three credit reporting agencies (CRAs).
(Click here to learn more about why your 3 credit scores may be different)
What you need to know about your credit score
Use your credit score as a guide. Given the use of different credit scoring models, it can sometimes appear as though you will never know exactly how you will be viewed by lenders. However, each credit score is a useful tool to help you take stock of your financial standing. Your credit score reflects your history of borrowing and repaying money, and lenders use that same history to determine your creditworthiness.
(Read more: Eight Things You Don’t Know About Your Credit Score)
A low credit score could cost you. Lenders use your credit score as a factor in deciding whether you qualify for credit and which terms and interest rates they will offer you. The lower your score, the less likely you are to be approved. Taking steps to improve your credit score could reduce your interest payments over the life of your loan. A good credit score may also grant you access to better financial deals, like refinancing options and credit card rewards.
There are ways that may help you to improve your credit score over time. If your credit score isn’t adequate to get the interest rates you want or to qualify for a loan, it is possible for you to take steps to change it for the better over time. You can’t expect to correct a poor credit history overnight, but cultivating good credit behaviors could eventually help you achieve a better score in the years ahead.
Your payment history is weighted most heavily in calculating your credit score, so make on-time payments on all of your accounts. Just one late or missed payment could lower your credit score.
You should also keep your balances low because a credit utilization ratio—how much of your available credit you’re using—of more than 30 percent on your credit accounts could make lenders see you as a greater risk.
As you’re trying to take steps to help improve your credit score, consider using existing credit responsibly and only open new lines of credit when necessary. Opening multiple credit accounts at once shortens your average account age and can lower your credit score.
You can track your progress by regularly checking your credit report. Look for inaccurate or incomplete information that could be negatively affecting your score, and promptly take actions to dispute inaccuracies. Getting in the habit of monitoring your credit report could help encourage you to maintain good credit habits, and it can also alert you to any potential signs of identity theft.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.