Question: What is a credit score and why is it useful?
Answer: Your credit score is a number that represents your creditworthiness. There are a few different systems for calculating this number, but the FICO score is the number that is most often used by lenders. The FICO score was developed by Fair Isaac and Company and the score ranges from 350-850. The higher the score, the better. You can learn about the components of your score by visiting myFICO.com.
If you have an excellent FICO score, which is generally 750-plus, you'll save money when you need to get credit. Your FICO score determines what interest rate, or APR, you'll qualify for. The higher your score, the better terms and interest rates you'll get with a credit card.
But the power of your FICO score doesn't stop there. Your FICO score is also used by mortgage companies when you want to get a mortgage to buy a home. It's used when you apply for a car loan or a personal loan from a bank. So you can see that paying attention to your score should be a routine part of your financial life.
To keep up with your credit score, you should check your credit report three times a year. No, that's not a typo! You're entitled to a free credit report from the major credit bureaus every year. You can go to AnnualCreditReport.com and order your credit report from one of the three bureaus: Equifax, Experian and TransUnion. Space them out and order one from each bureau every four months. After you order your report, you'll have a chance to order your FICO score.
There is a cost for your score, so you may not want to order this every four months unless you suspect a problem. Pay your bills on time and don't go over your credit limits, and you'll be more likely to have a high score.