Many consumers look at their credit scores and are at a loss for what to do next. Since a credit score is the reduction of your entire credit history to three digits, it’s hard to really see what is happening to get your score to this point. You might see that you have a low score or a high score, but what does that mean for you and your finances? How can you go behind the credit score to get a better idea of what you can do to improve the situation?
“The first thing beyond the credit score is a person’s credit report,” says Steven Lesavich, PhD, and author of The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards. “You must be able to read and understand your credit reports.”
Your credit report and clues about your credit score
It’s the information in your credit report that is used to determine your credit score. Credit scoring models assign numeric values to the information in your credit report and use an algorithm to figure out what your three-digit score will be. But the process isn’t even that straightforward. “You have different credit scores,” says Lesavich. “One from each of the credit bureaus and a FICO score.”
That doesn’t even take into account the fact that there are different credit scoring models, including VantageScore, which is gaining traction in the world of lending. Each of the credit reports from the different credit reporting agencies is used in the creation of credit scores, and that means that differing information between credit reports can result in different scores. Plus, individual lenders might use their own modifications of scoring models, emphasizing different aspects of your situation, depending on the loan you are getting.
As a result, your first step is to dig into your credit report to make sure the information listed is correct. “If there are any errors, you should dispute them,” says Lesavich. In 2012, the FTC released a report indicating that about 26 percent of consumers have a “potentially material” error about information often used to generate credit scores. You can sign up for a Quizzle account to get your free credit report and score, or use AnnualCreditReport.com to pull a free credit report from each of the major bureaus once a year.
Once you have your credit report, you can begin looking at information to help you see where you might be weak. Fix errors on your report, identify problem areas, and begin to move forward.
Consumer credit sites and in-depth help with your credit score
Sometimes, even after you get a copy of your credit report, it’s hard to identify what items are causing you problems, and how each part of your report impacts your credit score. Getting beyond your credit score to see what actions you can take to improve your situation sometimes requires guidance. This is where consumer credit sites like Quizzle can help.
Consumer credit sites make it a point to analyze your score, breaking it down in plain terms for you. If you have a low score, a consumer credit site can tell you exactly why. Quizzle makes use of “reason codes” that identify specific factors impacting your score. The explanations of these reason codes can provide you with greater insight into how your score is figured, and help you see exactly which of your behaviors are contributing to a score that might not be quite as high as you would like.
Not only do many consumer credit sites offer you information about the “why” behind your credit score, but many also provide you with concrete steps you can take to improve your credit situation. You can receive helpful strategies for improving your credit score specifically, and improving your finances overall. With helpful insight and guidance in creating an action plan, your credit score becomes more than just a number; it becomes a way for you to confront the realities of your situation and make lasting changes to the way you manage money. This can save you money on all sorts of financial services, from loans to insurance.
Your credit score gives lenders and others in the financial services industry a way to make snap judgments about you, and the way you are likely to handle credit (and, by extension, your finances). However, this doesn’t mean that you can’t dig into your score and figure out how to improve it so that you put your best foot forward.
“Remember that a credit score is dynamic,” says Lesavich. “A bad one can be improved in a short amount of time. A good can be lowered in the same short amount of time.”
The right resources, and an understanding of what goes on behind the scenes of your credit score, can help you stay on top of the situation and build a credit reputation that ensures you the best loan rates and other good financial deals.