Learn More About Checking Your Credit Standing
Why is my credit standing important? Your credit standing is important because decision makers (from creditors and lenders to landlords and employers) utilize it to not only determine whether you are eligible for approval, but also to set your interest rates, insurance premiums, credit lines, etc. If you are wondering how your actual credit score fits into all of this, your credit score is essentially a numerical manifestation of your credit standing, designed to quickly indicate your financial risk (or lack thereof). Your credit score is generated by proprietary statistical models and is based on information within your major credit reports. Having the highest possible score is crucial, given just how many facets of life your credit standing impacts. A practical example of this is the fact that, according to FICO, the leading credit scoring agency in the U.S., a 100 point difference in your score can cost you $40,000 in interest over the life of a 30-year $300,000 home loan. So if a free credit score simulator, such as this, or, even better, your actual FICO score indicates a need for increased credit building efforts, make sure to take heed. It is important to note, however, that given the close relationship between your credit reports and score, mistakes on your credit reports can misleadingly impact your FICO score. Therefore, before actually ordering your credit score, you should visit annualcreditreport.com and perform a free credit check online in order to spot any inaccuracies in your credit files.
What is a Credit Check?
The term “credit check” is used rather loosely, but it generally means one of the three following things: 1) to check the veracity of your credit files; 2) to check your credit score; and 3) to check your credit standing based on anonymous questions (think the credit score estimator on this page). Each type of credit check serves a distinct, yet important purpose, and at the end of the day, consumers should utilize all three to their full advantage.
Verifying the accuracy of your credit reports should be an ongoing practice, as it allows you to correct any errors on your major credit reports and ensure that you don’t fall victim to identify theft. The best way to do so is to perform a free credit check online by visiting annualcreditreport.com and requesting the free copy of each of your three main credit files to which you are legally entitled every 12 months.
Ordering your credit score should be an infrequent act, given that it costs money to buy to buy the FICO score, which is what most lenders use. Therefore, you should order your FICO score when contemplating a major financial decision, like purchasing a home or a car or getting a small business loan.
Performing a casual credit check by using a credit estimator like the one on this page should be done when you are contemplating smaller-scale financial decisions, such as applying for a credit card, store card, etc.
How accurate is this Free Credit Check? It is important to remember that this free credit check is just an estimate. It is an estimate that is not based on your credit reports, but rather on the answers that you provide to the above questions. These questions are designed to indicate the credit score range into which you are likely to fit, given the types of credit cards you have been approved for in the past, your payment history, and any negative public records that may be attached to your name. It is therefore very important that you answer the questions posed to you by this credit score estimator truthfully and with care. And remember, take this tool for what it is–a basic credit score estimate calculator–not something on which to base major financial decisions.
Why use this Credit Score Estimator? This credit score estimator is important because it gives you a general sense of your credit standing and does so for free and without any personal information. With an estimate credit score in mind, you will be able to more accurately focus your credit card search and thereby hopefully avoid the hassle of applying for the wrong card and not getting approved. In addition, this type of credit simulator is useful in that it gives you a good baseline idea of where your credit should be based on your general consumer profile. If you order your actual FICO score and the result is completely divergent from where this free online credit check indicates it should be, this could be an indication of something being amiss.
How do I determine my exact credit score? Before getting into specifics, it is important to note that there are a variety of different credit scores out there. People often assume that each consumer has a single credit score or that one score is as good as any other, but the truth is that simply checking your credit score at random might not do much for you. After all, a particular credit score is only as useful as the number of lenders that use it. You see, different scores use different variables and may have different scales, which means a 700 rating from one company may indicate something very different about your fiscal responsibility than a 700 from a different credit score provider. The only way a credit score will be truly beneficial to you is if you get the exact type of score used by your prospective lender. Therefore, even though a lot of companies offer free credit scores, we recommend ordering your FICO score since it is used by 90% of all consumer lenders in the U.S., according to the Fair Isaac Corporation. If you determine that you don’t have excellent credit, you can also check out our tips for improving your credit score.
What factors comprise my credit score? While each credit score is based on different information, why don’t we take a look at what makes up your FICO score since it is used by the most lenders in the U.S.? A FICO score is comprised of the following five sections, each of which carries a certain weight:
- Payment History - 35%
- Amounts Owed - 30%
- Length of Credit History - 15%
- New Credit - 10%
- Types of Credit Used - 10%
For more specifics, check out out the credit score section of our Education Center.