When it comes to this topic, the volume of industry lingo abounds. For example, you’ve probably heard terms bandied about such as: credit history, credit report, credit score, credit rating, FICO score. For the most part, these mean the same thing:
“A statistically derived numeric expression of a person’s creditworthiness that is used by lenders to access the likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person’s past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the person is deemed to be.”
Many thanks to Investopedia for the definition. Still confused? Here’s an easier breakdown–let’s compare credit rating terms with the high school grading system. If you bombed in high school, don’t freak out, this is merely hypothetical:
- Credit Score = GPA; the averaged number used to access your borrowing credibility.
- Credit Report = Overall Transcript detailing your borrowing habits.
- Credit History = Progress Reports highlighting your borrowing behavior and includes risk factors such as bankruptcy and late payments.
Essentially, when you set out to borrow money to purchase a house, the banks want to know how reliable you will be with their money; the higher your number, the more willing they are to hand over the house keys. They also use the information to determine interest rate and any credit limits.
It’s important to check your credit score—even if you’re not buying a home—every year. You can get a free copy once a year from the three credit agencies:
The overachievers out there have already figured out the possibility of getting your credit report three times a year if you space things out properly. In order to obtain a free copy of your credit report and avoid scam sites and/or hidden fees, go to go annualcreditreport.com or call 877-322-8228. *You have to specifically request a copy of the credit report.
Within the Credit Report:
- Personal Information – Always check for accuracy.
- Credit History – List of credit accounts, late payments, loans, again—check for accuracy!
- Public Records- Records of bankruptcy, liens, judgments.
- Inquiries – List of anyone who requests your credit report.
Your credit score is only one piece of the home-buying adventure. For more information on purchasing your own piece of the American Dream, contact me, Joni Kerley, at 425-343-4545.
*Image courtesy of stock.xchng.
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