Your credit score determines much about your financial health, including how easily you can borrow money, and how much interest you’ll need to pay. But many of us aren’t sure how to check our credit score before we start shopping for cars … so here’s not just how you do it, but why you should.
What Is My Credit Score?
Your credit score is a three digit number that allows finance companies to, at a glance, decide what level of risk they’re willing to accept from applicants. The score is a number between 300 and 850, where 300 is terrible credit and 850 is pristine credit. In reality, nobody has either of those numbers. If you’re in the 740-800 range, you have excellent credit; if you’re in the 680-740 range, you have good credit; 620-680 is seen as “acceptable,” and anything between 550 and 620 is not great, but something a lender can work with. Below 550 is extremely rare; even if you’ve had trouble in the past, it’s unlikely you have a score that low.
Contrary to popular belief, your credit score is not the only factor most lenders will look at; it’s simply a convenient tool that many lenders use as a starting point when deciding what to lend and who to lend it to.
It’s also not determined by the government, despite what you might think. Instead, your credit score is determined by analyzing your credit history according to a method designed by the Fair Isaac Corporation, or FICO. This is why your credit score can also be called your FICO score.
When a lender checks your credit, they generally contact one of three credit bureaus: Experian, TransUnion or EquiFax. As a rule, they all have the same credit history and thus, will give lenders the same score.
How Do I Check My Score?
Fortunately, there is one area where the government has stepped in; you’re allowed, once a year, to request your credit report from all three credit bureaus, absolutely free, and they’re required to provide it to you. You just need to visit their websites and click on the free report button.
Avoid sites that aren’t the credit bureau insisting they can also get your score for free; that’s generally an attempt to get you to buy useless “credit protection” products that you don’t need, and they’ll just order your free report for you anyway. But once you have your credit report, what should you do with it?
First, check it closely for errors. Your credit report will contain your previous addresses, your payment history, how much debt you currently owe, and what kind of debt you have on the books. Like any system, errors can occasionally crop up, and even an incorrect address can lower your credit score by a few crucial points.
Second, look into what you can do to raise your credit score. For example, if you can pay down some credit cards, do that; the lower your debt to credit ratio, the higher your credit score will be. But regardless, if you know your credit score, you’ll be better able to pick lenders and get the right car loan for you, so take a moment and get those reports.