Know Your Credit Score Before You Step Out For That Loan

Online, November 1, 2011 (Newswire.com) - Even if you haven't checked your credit score lately, you can bet someone has. If you've applied for any type of loan, whether it's a car loan, mortgage or credit card, you can bet the lender has checked to see what your score is and, therefore, what the probability is that you can and will repay the loan if granted.

With all of that riding on that little three-number score, it's easy to see its importance and why it's crucial you maintain a good credit score.

But what is a credit score? The term refers to your FICO score, which is based on a formula developed by the Fair Isaac Corporation. The score is derived from your credit accounts and payment history, and ranges from 300 to 850. The higher your score, the more money you can borrow and the better interest rate you'll get. Your score is made up of:

• Payment history - 35 percent

• Debts owed - 30 percent

• Length of credit history - 15 percent

• Number of accounts recently opened compared with total number of your accounts - 10 percent

• Types of credit used - 10 percent

You'll want to keep your credit score at least above 700 in order to make sure you get the best rates on a loan or credit card. The best way to do this is to pay your bills on time, and to keep one credit card in use for a long time, following the agreed-upon payment terms. You should also make an effort to stay on top of your credit report - review it carefully at least once a year. You have a legal right to one free credit report a year - take advantage of this and check your report annually to be sure there are no fraudulent or inaccurate entries.

If you find anything amiss, you can write the appropriate credit bureau and request that the information be investigated and changed where applicable. By law, the three credit bureaus have 30 days to respond to your request.

You should note that your credit score won't appear on your credit report. You will have to pay for that information through one of the three credit bureaus:

TransUnion, Equifax or Experian. Bear in mind that your score may vary a bit from bureau to bureau, due to variances in how they calculate it. But you'll be able to get a basic idea. It's a good idea to review your score and your credit report before you apply for any loan.