The terms “credit report” and “credit score” get tossed around a lot, but most people don’t really understand what they mean, how the two are related, and why they matter to lenders. The lawyers behind Lexington Law Firm can help you understand these terms and the basics to improving your credit report and credit score.
It’s important to understand credit and to ensure your credit score is in excellent shape before applying for loans, because that will increase your chances of qualifying for such loans at lower interest rates when you need them. Although there are many “self help” books available as well as thousands of articles on the web, getting personalized credit repair help from Lexington Law can help to make the process simple.
To get you started with the credit report help you need, read through the following important credit-related information. Again, you can also dive into the content on LexingtonLaw.com for even more credit report help.
How your credit score is determined
First, your credit score is based on the information in your credit report. Second, your credit report is a record of the credit cards and other loans you have obtained and how you have repaid them — i.e., whether your payments have been made on time and similar information.
Your credit score is calculated by analyzing the data that the credit bureaus maintain within your credit reports. Your credit score, which usually ranges from 300 – 850 is a number created to predict your creditworthiness to potential lenders. This is why it’s important to periodically check and clean up your credit reports: Fixing errors on your report should have a direct impact on your credit score.
Why lenders look at credit scores
Basically, your credit score is a simplification of the information contained in your credit report. Rather than reading through and interpreting the many pages of your credit report and considering the implications of your repayment history, a lender can simply look up a simple credit score in order to determine whether or not you fall within the range that they’ll consider.
What the lender really wants to know is how risky it is to loan you money and how likely you will be to pay back the loan on time. The concept is that past behavior can predict how you will likely behave (spend and repay) in the future. So, keeping your credit history looking good will give you a higher score, and in turn make you more likely to qualify for a new car, mortgage or other loan or open a new line of credit.
How credit scores affect interest rates
Less-than-ideal borrower behavior like late payments, collection accounts, judgments, and bankruptcies can lower your score. The lower your score, the higher risk a lender will consider you to be. If you are a high risk for them, you will almost certainly be charged a higher interest rate, or — even worse — you may not get the loan at all. Higher interest rates can amount to a significant amount of wasted money over the life of any loan and is particularly detrimental for large loans or those financed over a long period of time. Therefore, having a higher credit score almost always saves you money in the long run.
Before you apply for new credit — particularly a large loan such as one for a house or car — talk to a paralegal at Lexington Law for more credit report assistance. Let them help you take a clean approach to your credit report and your credit score improvement, so that you can qualify for the best interest rates possible.