What is a Credit Score?
As an expert on the subject, I’m here to talk you through all the intricate details that you need to know about your credit score.
A credit score is basically a tool used by lenders to see whether you are eligible to receive loans or credit.
When applying for a credit card, for example, the bank will assess your credit score and decide whether you are reliable before issuing it.
What is a Good FICO® Score?
This is one of the best-known types of credit score. It is the brainchild of the Fair Isaac Corporation and is commonly used to assess people’s credit ratings on a scale that takes into account various factors. So what is a good credit score number? Those who score highly, between 800 and 850, are likely to receive the best rates from a variety of lenders.
What is a Good VantageScore?
VantageScore is similar to FICO but it uses a slightly different scale of values. It was developed by Experian, Equifax, and TransUnion, three of the world’s major credit bureaus. In this report, a score above 780 is considered to be excellent and is achieved by 23 percent of applicants.
Why a Credit Score is Important
If you haven’t done much research into the topic, you may be wondering what all the fuss is about when it comes to credit scores. The thing is, though, that anyone lending money in any way needs to have some security on their assets. They don’t want to just give someone a credit card, let them blow all the allowance on it, and then disappear without paying the money back. For this reason, banks and money lenders can be extremely cautious when it comes to giving out a personal loan or credit.
In determining whether you are eligible to receive credit, the company will look into your credit history and calculate your credit score. Once they have this information, they are able to put you in a particular bracket. This then goes on to determine the kind of rates you are eligible to receive. The people who have the best credit scores will be able to receive higher loans with the best APR.
A credit score is important to lenders because it shows that you have a history of paying back credit and that you are reliable. Without one, the lending company won’t know which bracket to put you in and you may not be eligible to receive a loan. But credit rating scales are useful for borrowers, too, as they can see what bracket they fall into and what kind of credit they will be eligible to receive as a result.
A good credit score can make the difference between hundreds and thousands of dollars when it comes to the amount you can receive and will also impact the savings you make in terms of interest.
Factors that Affect your Score
Knowing about credit scores is all well and good, but how do you actually make sure that you have a good one? To do that, you need to know how to build credit, especially the factors that affect your score negatively or positively. Examples of ways to get a good credit score include using secured credit cards. Things such as late payments and bankruptcies have an impact on your credit score.
The main thing considered on your credit score is your past loans and credit cards, and how timely you were with the repayments. They will also look at the amount of debt you have, and your debt-to-income ratio, which is based on your total expenses against your monthly salary. Other things include the type of credit accounts you have open and how many new credit accounts you have opened recently. Investors will also look into whether there are any public records of your credit history such as bankruptcy.
Factors Not Taken into Consideration
- Race or religion
- Occupation or employment history
- Residential location
Do You Have a Credit Score?
Not everyone has a credit score. If you have only been earning a salary for a short period of time or you have never applied for a credit card or loan then you won’t have a credit history. If you don’t have a credit history, you could apply for a credit builder loan which will help you with how to improve your credit score.
How to Check your Credit Score
Knowing how to check your credit score can be a great way to find out if you are eligible to receive loans or credit. This knowledge can also help you prepare for the future, as you will know whether you need to improve your credit score before applying for a loan later on down the line.
Do You Have a Credit Score?
The first thing you need to be sure of is whether you actually have a credit score or not. If you don’t have one, you won’t be able to get a credit report. Instead, you could have someone countersign for you to prove that you are reliable.
How to Get Your Credit Report
You can apply to get your FICO score for free, or you could check your credit report yourself. An important thing to note is that you can’t harm your credit score by checking it, so there is no risk involved. Doing it personally is called a “soft inquiry” and is not considered in credit score evaluations. Experts advise to do these personal checks regularly so you can have a good idea about how your actions are affecting your score.
The way to get your credit report is to request a free copy from one of the three main credit reporting agencies. These include Equifax, Experian, and TransUnion.
In summary, developing a good credit score is something that everyone should strive to do. It may be hugely important in the future when you come to apply for loans or credit.