You may know that your credit score is used to determine whether or not you qualify for a loan. You may also know that your score can change at any time based on new information provided by creditors. However, there are likely several things that you don’t know about this number that may surprise you.
You Have More Than One Score
Each of the three major credit bureaus generates a credit score based on information it has about you. Typically, lenders use what is known as your middle score to decide if you are a worthy loan risk. There are also different scoring models used depending on what type of loan you apply for. For instance, specific reports may be generated when you apply for a home loan or when you apply for a credit card.
Bankruptcy May Actually Increase Your Credit Score
Filing for bankruptcy may actually help your credit score depending on what it was prior to doing so. This is because it may help you lower your debt-to-income ratio as well as bring late or missed payments back to current. However, it is important that you talk to a financial adviser or an attorney prior to filing to get a better idea of what may happen in your specific bankruptcy case.
Errors on a Credit Report Could Damage Your Score
You may know that missing a payment or short selling your home could cause your credit score to drop. Unfortunately, your score could suffer simply by having such information on your credit report even if it isn’t true. For instance, if a credit bureau receives information about a debt that doesn’t belong to you that went into collections, your score may drop by dozens or hundreds of points.
That is why you should ask for your free credit report every year. You are entitled to one free copy from each of the credit bureaus, and it is best to ask for them every three to four months to best keep tabs on your information. If there is a mistake on your credit report, contact either the creditor that made the error or the credit bureau to start the process of getting it removed.
Maintaining a high credit score should be one of your top priorities. Learning more about what goes into calculating that score and what may cause it to change can help you preserve your reputation as a responsible borrower. Ultimately, this can make it easier to get loans or other forms of credit to provide the financial flexibility necessary to maintain your lifestyle.