These days it seems every other company on TV is offering to give you your credit score, and even help you boost it. But is a good credit score all you need to get the best rates when applying for credit?
The answer is yes and no. Your credit score is important. Companies use it to determine if you qualify for a loan, the interest rate you’ll be charged and the maximum amount you may be loaned.
But companies also look at other things as well to determine your ability to pay back the loan:
On-time payments for everything from your rent and credit cards to utility bills. This history is a great indicator of your credit-worthiness.
At least one record to establish a credit history. Creditors look at what they call “debt-to-income ratio” and if it looks like you have more debt than your income can handle, that’s a red flag. It’s best to carry a balance of no more than one-third of your credit limit.
It may sound counter-intuitive, but don’t close credit cards after you pay them off. Closing an account, after you’ve paid it off, eliminates a good part of your credit history.
Periodically check your credit report for errors. You’re entitled to one free credit report a year from each bureau at www.annualcreditreport.com. You might find items you don’t recognize or that aren’t correct. If so, contact the bureaus to dispute the charges and have them removed.
Why are the scores different?
One thing that can be confusing for consumers is to see three different scores from Experian, TransUnion and Equifax. And you can get yet another number from a company that you’ve applied for credit with.
Every company has its own system of evaluating a person’s credit. Unless there’s a mistake on your report, minor differences in the scores between the bureaus are not a major concern.
Why did my score drop?
Sometimes people see their scores drop. If you’ve made a major purchase using credit, that will almost certainly drop your score because you’ve added more debt, probably without increasing your income (that debt-to-income ratio thing).
What’s a “good” score?
Another question that pops up is “what is a good credit score?” Again, every company has its own criteria, but generally speaking, a score above 680 puts you closer to the “prime” category.
That makes you eligible for some of the best interest rates when you’re looking at large purchases like a car or home. Also, the more down payment you can afford, helps you get a better rate.
It’s definitely something you want to work on for those big purchases as this graphic illustrates:
Speaking of buying a vehicle, here’s a list of auto financing terms that could help you become a more educated shopper when you purchase your next ride. And to find out more about credit and how it affects your finances, check out KEYS® by GM Financial. There you’ll find articles like “7 Actions to Improve Your Credit Score.”
And if you’re looking to refinance a vehicle, check out our new digital way to apply for financing without leaving your couch. Mode is backed by GM Financial, so it’s financing you can trust.
Take a look at Mode by going to getmode.com and let’s see if we can help get you a payment you’ll like.
By Julie Powell, GM Financial