In order to invest in a new place to live, it is crucial that you understand credit. Getting a mortgage and renting a home are nearly impossible without a good credit report. Lenders and landlords won’t work with you if you can’t prove that you are good for your payments.
Here is a general breakdown of credit reports and credit scores:
What is a credit report?
A credit report is a detailed account of your credit accounts. Usually credit reports are provided by the three major credit bureaus, Equifax, Experian, and Transunion. Everyone has a right to one free credit report per year from each of these bureaus. The contents of your credit report are reflected in your credit score.
What is a credit score?
Distinct from a credit report, your credit score is a three-digit number that reflects your credit report. Factors that contribute to this number include your payment history, how much you owe, and how long you’ve had credit, among others.
The higher the credit score, the better. If your score is in the 700s and above, you are in great shape. This score gives lenders concrete proof that you will likely pay off your loan in a timely manner. Thus, you are more likely to be accepted by a lender and might even get a lower interest rate than someone with a lower score. The amount of money a good credit score can save you over the years can amount to thousands of dollars and opportunities to make important investments.
Where can you start?
If you’re new to the credit game, here are some steps to get a good credit score:
- Open a checking and savings account.
- Get a credit card or debit card.
- Only make purchases that you can reasonably pay off monthly.
- Avoid the temptation to overspend.
- Pay off your debts as soon as possible.
- If needed, have a relative with good credit cosign a loan with you.
- Read up on personal finance books. Personal Finance in Your 20s & 30s for Dummies by Eric Tyson is great, and you can find it on Amazon here.
For tips on maintaining your finances, we also find Dave Ramsey’s blog be helpful. You can find his helpful advice on credit scores here
We hope these tips inform you of credit reports and scores and help you improve your own! Want to learn more from someone on Our Team? Feel free to Contact Us. We're happy to help.