When it comes to financial situations regarding debts like loans, one of the most important things to be aware of is your credit score. This magic three-digit number is incredibly important when it comes to making financial decisions. A credit score is usually the deciding factor when it comes to credit card inquiries, loan decisions, homebuying, and more.
But for all its importance, the amount of people who actually understand how a credit score works are few and far between. Shouldn’t you know how credit scores are impacted so you can be prepared for situations involving credit rating? Well, thanks to the article you’re about to read through MaxCash, soon you’ll be a credit score expert.
Some Credit Score Preliminaries
Before we get into the niceties of how a credit score is determined and what it does for you, let’s first discuss what a credit score is used for. Credit scores are a three-digit number used by banks, credit unions, and other financial institutions to determine whether or not you’re financially stable enough to acquire a loan.
Knowing a person’s credit score saves time for lenders. Usually, manually determining a credit score can take a lot of time. Instead, a computer can easily go over the necessary financial information and generate a score quickly, saving time for all involved. If a potential borrower’s credit score is good, they could land a high loan with affordable terms and rates—regardless of their look or actions.
Credit Score Types and How They’re Calculated
There are different kinds of credit scores. Generally, most institutions only look into one credit report, and there are three main credit reports they look at. These three reports are produced by Equifax, Experian, and TransUnion. Each credit score is named after the company that calculates these scores. Together, these loan types are known as FICO credit scores, and are the main scores used by lenders.
All three FICO scores are calculated differently, but they all generally follow the same formula. They’re a three-digit number that falls between 300 and 850, calculated by averaging out five components of your financial life. These five components are:
- Types of Credit – Usually making up about 10% of your score, this is the amount of credit types you have. Having a diversified credit history—such as different varieties of insurance and multiple credit cards—looks good on a FICO score and can bump it up nicely.
- New Credit – Another 10% is impacted by applying for a lot of loans all at once. This is a bad idea, as your credit will drop if it appears that you’re taking on a bunch of loans at once. Having a healthy credit score is better and keeps this score from dropping.
- Credit Timespan – If you’re new to the credit/lending world, this score starts out low. The longer you use credit and regularly pay debt back, the better this score gets. This usually results in 15% of your FICO score.
- Current Debt – This is a big one. Your current debt at the time of the loan inquiry is factored into your score. Having a high amount of owed debts isn’t great. Keeping your debts manageable can help keep 30% of your FICO score at a manageable amount. If you’re maxed out a credit card, it’s not going to look good. It’s a good idea to prevent max-outs from happening often.
- Payment History – The biggest and most important part of your FICO score is your payment history, making up 35% of your overall score. This score stays good so long as you regularly pay back your debts and loans. Missing out on payments or defaulting on loans is a surefire way to lower your score. So, keep those debts managed properly to keep your credit score in line.
With all these determining factors, it can seem overwhelming to keep track of all of them. Calculating your own credit score can be a nightmare unless you can obsessively keep track of your score like a machine. But if a credit score is so integral to getting a loan, there must be a better way to keep track of your credit score beyond doing it manually, right? Thankfully, there is an answer, and that answer is MaxCash.
MaxCash Provides Free Credit Scores
Trying to find out your credit score online can be rather difficult. Many companies require payment for a credit score report, and even then, those credit scores can be inaccurate and untrustworthy. Plenty of companies stand to gain from giving an improper credit score. Thankfully, MaxCash has a solution to all these problems, because they offer credit score reports for free.
Yep, that’s right. MaxCash offers free credit scores to consumers. There are no hidden costs in the fine print, or issues to worry about. All it takes to get a free credit report from MaxCash is to join their auto loan financial referral service program, which is also free.
So, what’s the hold up? Hop on to MaxCash.com and get your free credit report today. Your credit score will thank you for it.