How Lenders Use Your Credit Scores

Lenders want to know your credit history to decide whether they should approve you for a loan or deny you. They use risk assessments and underwriting to determine how much of a risk you present to them. In most cases, higher credit scores means you present a lower risk to lenders. In addition, if you look like you’ll present a higher risk to a lender, the lender may give you a loan but charge you a higher interest rate. 

Do lenders only consider your credit score when determining whether you need a loan? No. The information you provide on your credit application also makes a major difference. Lenders will also consider your monthly income, cash and investments, such as retirement accounts, stocks and bonds, for example, in their evaluation process.

Check for Common Credit Errors

Did you know that you should take advantage of those free credit report offers you hear about? They’re definitely not a scam and they definitely don’t cost you anything, so it’s to your advantage to use them. Why?

Credit reporting errors happen more often that you probably realize. In fact, one in five people has an error on at least one of their credit reports, according to a study conducted by the Federal Trade Commission. Common errors can include:

  • Personal information errors (mixed up names, phone numbers and addresses) which may or may not relate to identity theft issues
  • Account statuses reporting incorrectly 
  • Debts listed more than once
  • Balance errors (including incorrect balances)

You may spy other errors not related to the errors above after you check your credit. You want to fix these errors as soon as possible because not doing so can affect your future.

How to Check Your Credit and Dispute Errors

You can tap into free credit score information through your credit card company or credit card monitoring service that involves a paid subscription. 

You can also access your annual credit report for free through AnnualCreditReport.com, the only federally authorized source for free credit reports. You get access to all three of your credit reports for free once each year.

You can dispute errors by reaching out to credit bureaus directly: 

 

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.