Unraveling the Mystery of the Credit Score

The subject of credit scores can seem daunting and a little unnerving. Where do they come from, how do they affect me, and who controls them?

Credit scores are compiled by credit bureaus ‒ companies that gather information about your financial history. Those agencies use different and, quite often, complicated formulas, but a credit score is just a ranking of how likely you are to repay a debt.

Scores are based on things like how often you make payments on time and the specific kind of debt you have ‒ a car loan, a student loan or credit cards, for example. Credit agencies also typically look at how much of your available credit you’re using, how much credit you’ve taken on recently, and the length of your credit history.

Favorable credit scores benefit consumers in several ways. They make it easier to get more credit and lower your interest rates, giving you more purchasing power when borrowing for big-ticket items like a car or house. In addition, most states allow car insurance companies to base premiums, in part, on your credit score.

What’s your score? Here are four suggestions from the Consumer Financial Protection Bureau that can help you find out:

• Check your credit statements. Many credit card and auto loan companies now include credit scores on their monthly statements.
• Talk to a nonprofit counselor or one approved through the U.S. Department of Housing and Urban Development. They can usually provide a free credit report and score, and help you review them.
• You can use a credit reporting service but be careful when a free score is offered. Some of these services are funded through advertising and don’t charge. But others may require you to sign up for credit monitoring advertised as a free trial. If you don’t cancel within a certain amount of time, you could be on the hook for a monthly subscription fee.
• You can also buy a score directly from credit reporting companies. And if you do, you can’t be required to buy other services like credit protection or monitoring.

If you’re trying to improve low credit scores, make sure all your bills get paid on time every month. Experts say that building a lengthy and solid payment history is the most effective way to bring your scores up.

And remember you have rights when it comes to credit reporting. You’re entitled to a free credit score, for example, if the score results in being denied a loan or insurance. And you’re entitled to a free credit report ‒ though not a free credit score ‒ in certain cases in which you’re denied credit or offered substandard credit terms.

Want to know more about credit scores and reporting? Call us. Origin Bank is committed to improving customers’ financial knowledge, and that includes helping you keep more of your money when borrowing or taking on credit.