If you’re thinking about buying a new house or car, there’s an important step you should consider before you even start shopping: checking your credit score. This will help to ensure you’re well positioned to borrow money since most major purchases will likely require a loan.

Why should I check my credit score?

“Your credit can change from month to month, so actively monitoring it is a good practice,” says Bob Skwarek, spokesman for the credit reporting agency TransUnion.

Your credit score is a number that rates the likelihood that you’ll pay back a loan. The most widely used are FICO scores.

A higher credit score (above 700) can help you get better interest rates on credit cards, car loans and mortgages—and even result in lower insurance rates.

You won’t have a single FICO score. There are three agencies that collect credit data, so your FICO score may be different depending on which agency’s data is used.

How do I check my credit score?

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Your credit report doesn’t include your credit score. Your score may be on statements for your credit card, bank account or loan, or available online with those companies. You can also purchase your score from the three credit agencies and FICO.

It’s also important to regularly review your credit report from each of the three agencies. At AnnualCreditReport.com, you can get free weekly online reports amid COVID-19 through April 2021.

Make sure the information is correct and scrutinize anything that doesn’t seem right—like an account you don’t recognize. You can dispute any inaccuracies you find directly with the credit reporting company. This is a great opportunity to prevent or detect identity theft, too.

How is my credit score calculated?

Factors used to calculate your credit score, according to the Consumer Financial Protection Bureau, include:

  • Bill-paying history
  • Current unpaid debt
  • The types and number of loans you have
  • How long you’ve had your loans
  • How much of your available credit you’ve used
  • New applications for credit
  • Whether you had a debt sent to collection, a foreclosure or a bankruptcy, and how long ago

Keep in mind that not all credit is created equal. For example, medical debt generally counts less against your score than credit card debt. And the way scores are calculated changes every few years, with the latest version being released in 2020. However, financial institutions are able to use older versions of FICO, so your bank may not be planning to change to the newest version anytime soon. But at the end of the day, minimizing debt and making payments on time is the best way to achieve and keep a high credit score, whichever version of FICO is being used.

How do late payments affect my credit score?

Different portions of your credit file are given different weights:

  • Payment history: Whether you’ve made credit payments on time.
  • Amount you owe: The percentage of available credit that you’re using.
  • Length of credit history: A longer history generally increases your score.
  • Your credit mix: Credit cards, retail accounts, installment loans, etc.
  • Pursuit of new credit: Research shows that opening several accounts within a short period can represent a greater risk.

How can I improve my credit score?

Find out how financial decisions can impact your credit score.

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If the information is accurate but your score isn’t as high as you’d like, take steps to improve it.

“The two most important factors in building or maintaining good credit are to pay your bills on time and in full each month,” Skwarek says. “Another crucial factor is your credit utilization rate—the ratio of credit you’re using compared to your full available credit limit. Most experts recommend keeping your account balances at or below 30 percent of your credit limit.”

Remember that improving your credit score can take a while, and you want to have that higher score in place when you apply for a loan. So, start today.

Will rarely using credit affect my credit score?

To get a credit score, you must have a minimum credit history. Specifically, you must have at least one credit account that has been open for six months or longer, and at least one account that has been updated in the past six months. This ensures that there is enough information in your credit report to generate an accurate score.

If you don’t meet these minimum criteria for getting a score, get started! Open a credit card or two, use it, and pay your bills on time. Then you’ll get a credit score—an essential step in applying for a loan.

Ready to Get a New Loan or to Refinance?

Talk about home or auto loans with the experts at AAA Banking Services. Just click on “Home Loans” or “Auto Loans & Buying” for more information and to start an application. Products are offered by Auto Club Trust, FSB, Equal Credit Opportunity Lender.