What is a credit score?
If you are considering buying a car, home or applying for a credit card before the lender is willing to loan you money they will want to know the likelihood you will repay the loan. Your credit score is a gauge of your credit risk.
Each of the three main credit bureaus (Experian, TransUnion, and Equifax ) calculate your credit or FICO score (which stands for Fair Isaac Corporation) using a variety of variables such as:
- The amount of credit you have
- The type of credit you have
- Your total debt limit
- How long you have had the credits
- The payment history of all your credit obligations
Given the information above the credit bureaus will generate a score which determines the rate that a lender may give you if you request a loan.
Credit scores range from 300 to 850 and the higher the number the better. If you want to increase your FICO score the best thing to do is pay your bills on time. Bill payment history comprises approximately 35% of the score (with the amount of credit owed coming in a close second). A FICO score may vary slightly between each of the credit bureaus.
Why do the credit bureaus rely on your payment history? It’s like the saying, “past actions are the best indication of future behavior.” The credit bureaus believe that the best predictor of whether you will pay your future debts is whether you have paid your past debts.
Requesting my FICO score
You are allowed to either purchase your credit report through the three main credit bureaus at any time or to make a request for a no-cost report one time per year. This can be done by contacting any of the three national credit agencies (TransUnion, Equifax and Experian). The benefit of monitoring your score each year is you will be able to catch erroneous entries, which can then be disputed and corrected.
Unfortunately, even if you request your credit report, the credit bureaus do not provide you with your credit score for free. There is no true way to get a free FICO score. One of the main ways to get your credit score is to have a company monitor your credit files. For instance, Equifax has a program called Equifax Complete™ which monitors your credit files and provides alerts. The program also provides consumers with a three in one credit report which includes your three credit scores from each main credit bureau.
These services can range in cost but the Equifax program is approximately $16 per month. Several suggestions online also included signing up for the bureau’s offer to “monitor” your credit and cancelling the service after you find out your score.
Filing for bankruptcy protection
One of the main concerns of debtors who are considering filing for bankruptcy is whether it will lower their credit score. Because payment history is such a large component of your credit score if you are to the point of considering bankruptcy it is likely that you have already been delinquent on repaying your debts and your credit score is likely to have suffered. But to answer the question, if your credit score is not already low, filing bankruptcy will substantially lower it.
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