What is a credit score?
What you were looking for open a new credit cardget a mortgage or get car insurance, you need good credit.
Your credit score helps financial institutions get a realistic picture of your overall credit health. If your score is too low and your credit is weak, you may find that a lender will offer you a higher interest rate or other unfavorable terms. In some cases, you might even be denied the products and services you most want.
If you don’t already know your credit score, you should consider using an online tool to help you. Get a free credit report now!
What is a credit score?
Your credit score is a three-digit number that measures your creditworthiness or the likelihood that you are responsibly managing your financial accounts, including your credit card debt. This number varies between 300 and 900, depending on the credit bureau calculating it. The higher your score, the more creditworthy you are considered. It can unlock lower interest rates, better loan terms, new credit card options, available lines of credit and more.
If your credit score is at an all-time low, don’t panic: there are steps you can take to improve that number. It might not be a bad idea, however, to seek expert advice on how to improve the way you manage your personal finances. You can start the credit repair process now.
There are three credit reporting agencies in the United States, which are responsible for monitoring and maintaining credit-based activity for American adults. These bureaus – TransUnion, Equifax and Experian – receive information from existing creditors and provide this information to potential creditors who can “pull your credit.” These creditors may use a number of different models to calculate your score, including FICO, VantageScore and others. So you can have more than one credit score.
A credit report will provide a detailed look at your credit history, including things like outstanding loan balances, overdue payments, and age of accounts (the older your accounts, the more reliable you can appear to lenders ). Credit reports may also contain outdated and incorrect information that may negatively affect your score. It is therefore worth reviewing it carefully to ensure that it is complete, accurate and up-to-date. These reports are added to your credit history, where they will remain for seven years before dropping.
Again, it’s worth double-checking your score to make sure you have the latest number. Your credit score can change over time, so be sure to use the tools at your disposal to have the most up-to-date information.
Each time you open a consumer account, such as a loan or a credit card, the creditor will report the new account to at least one of the credit bureaus. Each month, they’ll also report your most recent account activity: whether the account is still open, how much you currently owe, what your credit limit is, whether you made your last payment on time, and any personal information related to the account.
What causes a bad credit score?
Although each credit scoring model has its own rating ranges, anything below 580 to 600 is generally considered a bad rating. If you have a bad credit score, it can lead to declined loan applications, limited credit card options, and even higher car insurance rates. Bad credit is usually the result of one or more of the following:
Not having enough (or a diverse mix of) different accounts Payment history (late payments can particularly count against you) Unpaid accounts or those that have been collected or debited Credit usage (how part of your credit capacity is currently available) Too many applications in a short time Too many new accounts recently opened History of bankruptcy and/or judgments
You can also get a bad credit score if your credit history is limited or non-existent. If you’ve never opened (or tried to open) a credit account of any kind – a credit card, a loan, a charge card such as American Express, or even a medical bill on collection, it is likely that your credit report will be quite sparse if not empty. If the credit bureaus don’t have any information about your creditworthiness, it’s difficult for a scoring model to calculate a score for you.
How to improve a bad credit score
If you have bad credit, improving that number to three digits is a smart goal. You don’t have to wait to do it (and shouldn’t). Repairing your credit is a process that can start now.
While a single late payment can drop your score by dozens of points, rebuilding that score can take a lot more time and effort. In general, you will increase your chances of having a good credit score by:
File disputes to correct errors you may find on your credit report. unless you need it secure credit card to help you prove your credit Limit the number of new accounts you open in a short period of time Pay off your debts as quickly and efficiently as possible
If your credit history is limited, you can sometimes get your rent payments and even your utility bill payment history added to your credit report. As long as you made these payments on time, it can help you quickly increase your score and get a good credit score.
At the end of the line
Your credit score can sometimes seem like three arbitrary numbers, but they have the power to control many factors in your financial life. Building and maintaining a healthy credit rating can not only make your life easier, it can also save you money in the long run. Having a bad credit rating is worrisome, but can absolutely be fixed with a little time and a little dedication.
If you’re concerned about your credit score and want to work to improve it, consider working with a credit repair professional. start with a free credit assessment.