To judge whether to grant you credit and what rate to offer, lenders often peek at your credit score, a three-digit number derived from your credit history.
Many versions of your credit score exist, and you may not have access to the one a lender plans to view.
But you can get a good idea of where you stand by using a free site such as CreditKarma.com, which provides VantageScore credit scores from credit bureaus Equifax and TransUnion, and FreeCreditScore.com, which provides a FICO score from credit bureau Experian. Your bank or credit card issuer may offer free score updates to customers, too.
Standard credit scores run from 300 to 850, and a score of about 750 typically qualifies you for the best loan terms.
The most important move you can make to boost your score toward the top of the scale is to pay all your bills on time. Another sizable factor is your credit-utilization ratio — a percentage that reflects the balance on your credit cards as a proportion of your card limits. The lower the ratio, the better for your score; aim to keep it at 20% to 30% or less.
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Finally, avoid opening several new credit card accounts at once.
Each card application creates a hard inquiry on your credit report, and the presence of several card inquiries in a short time signals to lenders that you may be a risky prospect as a borrower, lowering your score.
Review your credit reports. The credit reporting companies compile information about how you’ve managed credit in your credit reports.
At annualcreditreport.com, you can view your report from each of the major reporting companies once per week through the end of 2022; thereafter, once every 12 months.
Regularly review your reports for errors or signs that an identity thief is at work, such as a new credit account that you never opened or a collection account for a debt you don’t owe.
You can also use services that regularly scan your reports and alert you to changes — Credit Karma and FreeCreditScore.com offer free credit monitoring as well as access to your reports.
If you find a problem, contact the lender or other company that furnished the inaccurate information and file disputes with the credit reporting company that posted the error on your report.
A credit freeze is the best way to thwart identity thieves who try to open accounts in your name. A freeze blocks lenders from viewing your credit report in response to an application for new credit, and it’s free to place one on each of your reports. Before you apply for a loan or credit card, you can temporarily lift the freeze.
For a step-by-step guide, see kiplinger.com/kpf/freeze.
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