The Importance of Knowing Your Credit Score and Credit Report

Earning and maintaining good credit is important for many individuals across the country. Having good credit can help you qualify for loans or other types of financial programs that can help you own a home, purchase a car or achieve other goals.

Bad credit, on the other hand, can greatly hinder your chances of getting a loan, preventing you from making large purchases and achieving certain life goals. This can greatly affect your quality of life.

Before you set out to make a large purchase that requires you to take out a loan, it is best to know your credit score and be familiar with your credit history. Additionally, you should always keep track of these items, as they are reflections of your financial situation. There are other reasons why you should know your credit score. Learn more about why your credit score is important by reviewing the sections below.

What is a credit score?

Before you dive into learning about why it is important to know your credit score, you should know what a credit score is. A credit score is a figure that reflects information on your credit report. The score shows lenders your history of lending and repayment of loans, and it can show a lending company how must financial risk you pose to the company. The credit score is a three-digit number that usually ranges from 300 to 850, where 850 is an excellent score and 300 is a very poor credit score. These scores can affect many areas.

What is a credit report?

While a credit score rates the health of your credit, you should also be familiar with exact details of your credit history. A credit report, also called a credit check, provides certain financial history details. With a credit report, you can see any of your current or previous loans and the lending institution. Your credit report can also reflect any credit inquiries you or a company has made for a line of credit. Inquiries can negatively change your credit. You can also see credits cards in your name and any public records, like foreclosures or wage garnishments.

Who uses a credit report?

Lending companies request many credit reports for potential borrowers. With this report, lending institutions can evaluate your suitability as a borrower by reviewing your financial history to see how much of a risk you pose. A lender can see if you make timely payments or check how much credit you have accumulated to see if you will make timely payments on a loan. Although a bad credit score and poor history may not automatically disqualify you for loans or credit cards, lenders may still use the information to set terms of a loan or deny a request.

Landlords and property managers can also request a credit check if you are a prospective tenant looking to rent a property. With this check, a landlord can determine if you will be responsible tenant based on current owed amounts and repayment history. A credit check requested by a landlord shows public record information, such as foreclosure or evictions, depending on the circumstances.

You can also use your credit report to see your financial history and protect your information. If you suspect any identity theft, it is a good idea to monitor your credit report for any fraudulent credit cards or similar requests. If you find any accounts you do not recognize on your credit report, you must notify the credit bureaus immediately in order to rectify the information. If your identity has been stolen, the credit bureaus can advise you about the next steps you must take to secure your finances.

Reviewing your credit score can also help you monitor your overall financial health by helping you keep track of open accounts and potential problem areas. Sometimes a credit report can reflect incorrect information, and these errors can affect your ability to get loans, housing and employment. Correcting information on your report can help you control your finances.

Credit Reports and Employment Opportunities

When considering you as a potential candidate, some employers may try to find out your background by hiring someone to do a background check. If you currently have a job, your employer may use a background check to determine if you should keep the job. An employer may be interested in obtaining all kinds of information about your background, especially during the hiring process. Besides criminal report, the most common type is a credit report.

Specific rules apply when an employer asks for a credit check about you during the application process. Many employers do not request a credit report as terms of employment, although this depends on the type of position for which you submit an application. Jobs that involve handling money or secure data typically request a credit report before completing the hiring process. The company will ask for your permission before requesting the report.

You do not want to wait until after you have invested in a potential job to find out that you are not a candidate because of something in a credit report or background check, regardless if the information is accurate or not. You can stay a step ahead of your credit report by checking it every year. It is your responsibility to make sure all the information on a credit report is accurate so that you stay an ideal candidate for employers.

Why Your Credit Score Matters

Your credit report depicts the details of your credit history, including any current loans or lines of credit you currently have. While this is a thorough indicator of your financial health, many institutions desire to use a more concise way of determining whether you have good or bad credit. This is where you credit score comes into play.

This numeric value quickly tells institutions, like lenders and creditors, whether or not you have a good credit history. If you have a good credit, this signals to lenders and creditors that you can be trusted to pay back your loans on time, pay your credit card bills and not become bankrupt, among other factors.

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