For today's edition of “back to basics” month at Get Rich Slowly, we're going to talk about credit scores. What is a credit score? Why should you care?
As you go about your life, you leave a trail of transactions. You take out a mortgage, you buy a new car, you use your credit card to buy new clothes and your debit car to purchase groceries.
Every month, your creditors — the companies to which you owe money — send info about your recent activity to a variety of credit reporting agencies (commonly referred to as credit bureaus). Each agency collects this info into a file called a credit report.
Your credit report is a history of how well you've managed your credit. It contains info about where you've lived, how much you've borrowed, and whether you tend to pay your bills on time. It also notes if you've ever filed for bankruptcy.
The credit bureaus — Equifax, Experian, and TransUnion — sell your credit report to other businesses so they can decide whether to lend you money, sell you insurance, rent you a home, or give you a job.
Credit reports may be boring, but they're vitally important because they provide the basis for your credit score.
How to Get Your Free Credit Report
The U.S. government has mandated that consumers be allowed to view their credit reports from each of the three major reporting agencies once every year. This is easy to do via the free AnnualCreditReport.com website. (Beware of scammy lookalikes. This one is the official government-sanctioned site.)
To get your report, you need to provide some basic info like your Social Security number. You might also need to answer some questions about current and/or past accounts. Sometimes these questions get tricky if you don't have quick access to your files. (When Kim had to check her credit report recently, she couldn't remember the amount of her mortgage payment from 2005. Her request was denied.)
If you'd like, you can obtain reports from all three credit reporting agencies at once. Or, you can stagger your requests, possibly requesting one report every four months from a different agency.
Your Credit Score
While your credit report collects info about your debt history, your credit score is a single number that summarizes all of that data. [Read more…]