Financial Fitness

What is a credit score, why do I need one, how do I check it and how do I improve it?

All common questions about the strange world of credit scoring.  Let's take them one by one:

What is a credit score?  Your credit score is a calculation of tons of factors (in fact, nobody knows the exact method -- it's proprietary, like Google's "secret formula") that are supposed to tell banks how good you are with credit.  It's a score out of 800 based on your credit report, which contains information about your past and current credit history.  There are 3 main companies that provide credit scores -- TransUnion, Equifax and Experian.  Each has its own calculations and your mortgage will take the middle one as your score.

Why do I need one?  You need a credit score to determine whether you qualify for a mortgage and what kind of interest rate you can get.

How do I check it?   Laws state that everybody gets to check their credit report for free once a year.  That shows your credit history, so you should go ahead and check it annually for errors.  It doesn't, however, give you a score.  I'll check your score for you as part of the mortgage application process or you can pay for a service with one of the 3 companies listed above to check it for you.  Be careful of checking it too much, which can lower your score!

How do I improve it?  Most companies that say they will improve your credit for a fee are simply scams.  The best thing you can do is keep your balances low (if you keep any balance at all) on credit cards and pay your bills on time.  Over time, these actions will improve your credit score.  It's as simple and as hard as that.