Making Cents: “What is a credit score, anyway?”
Mathew Carrick / Columnist
Much like a seawolf, a credit score is something many people are passionately concerned about without knowing exactly what that means.
Simply put, a credit score is a measure of how you pay your debts. It may not have a complete picture, but it’s often used by banks, landlords and even employers as a way to determine reliability. A good credit score can help you get better and bigger loans, like a mortgage or jobs with financial responsibility.
A credit score can range from a terrible 300 to a stellar 850, and is influenced by factors like how many credit accounts you have—with more being better—how old your average account is—with older being better—how frequently you pay your bills on time, and so on. Generally speaking, being an active but responsible and meticulous user of tools like credit cards and loans will help raise your score.
Your score is maintained by three credit reporting agencies: Equifax, Experian and TransUnion. Each may have a separate score, but they should be similar. These agencies may be contacted by authorized individuals and organizations who wish to know your credit score (interestingly, more checks on your score will lower it for a brief period of time).
By federal law, you can also request a free report once a year from each of these companies detailing your score and the reasoning behind it. The United States government maintains an official website, AnnualCreditReport.com, to help you through this process. There is a myriad free websites that will let you check your score frequently, but be wary of potential scams and ads.
So, are you shut out if you have a bad credit score? Not necessarily! Most items affecting your credit score are removed after seven years, so your score will eventually recover. If you think information affecting your score might be wrong, you can also file a dispute with the three credit reporting agencies.
Finally, rest assured that a credit score is not a be-all and end-all signifier of who you are: there are many people and organizations willing to give you a chance without a good score—it just might be more difficult for you.
You may find that your account comes up as a “thin file,” meaning you don’t really have a credit history. If that happens, the best plan may be to open a credit account such as a loan or credit card and to responsibly use it.
You can’t have a credit score without a credit history, so opening an account like this will help establish a track record. Just be careful not to get a loan you don’t need. I recommend a credit card, as most entry-level cards come with no fees and often have cash-back rewards or other incentives that make them useful tools.
Overall, your credit score is important to consider when planning your financial future, but you shouldn’t obsess about it. If you’re already practicing good financial sense through budgeting, on-time bill payments and maintaining a low debt balance, you’re on your way to a good score already!