Credit Scores: What are they?

So you want to buy a house someday? If you are getting a loan to purchase the home, your credit score is very important! This is a series of blog posts I’m writing specifically aimed at young adults or other first time home buyers.credit-score-report-history

Credit scores are a big mystery to many millennials, but they don’t have to be! An important topic like this deserves at least a basic understanding. So here’s where we’ll start…

  1. Why does it matter?
    Whether you are applying for a loan, getting a background check at a new job, ordering cable/internet, or trying to rent an apartment, your credit score will be checked. A high credit score is good, meaning you are more likely to be approved and at better rates. A low credit score means you either don’t have a long history of making payments, or you have missed/late payments. A low credit score will make it more difficult to get approved or pass the credit checks.
  2. Credit Score vs. Credit Report
    A credit score is a number from 300-850 that acts like a grade. 850 is an A+, and 300 is…not good. A credit report outlines the facts that the score is based on. The credit report details the credit accounts you have open (credit cards, loans etc), as well as credit inquiries.
  3. Hard vs Soft inquiries
    If someone checks your credit, it is either a “hard” or “soft” inquiry. A hard check is recorded on your credit report, and will negatively impact your credit score. Normally you have to authorize a hard credit check. Some examples of when a hard inquiry is needed: applying for a mortgage, applying for a new credit card,  or applying for a new auto/student loan.
    A soft inquiry can occur without your permission, but does not affect your credit score. Examples of soft inquiries: Checking your own score, pre-approved credit card offers, background checks (at a new job for example).

This is part 1 about credit scores, stay tuned for additional insights into the credit process!

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