What is a credit score, and why is it so important?

Introduction

What is a credit score, and why is it so important for you? If you're like me, you might think of someone getting their credit card bill. Or maybe learning that your car insurance rate went up. Those things are important to you, but they aren't always in line with the bigger picture of how much money you have, who owes you money, and what assets you have. This is where a credit score comes in.

A credit score is an important part of your financial health, so let us explain exactly what this number means. A credit score consists of three different factors: how much you owe, how much money you have in total available (available credit), and how long it has been since you last made a payment on time. Your credit score is the combination of these three facts and is based on factors like credit history, payment amounts, and amount of debt.

What is a credit score?

A credit score is a numerical value that summarizes the creditworthiness of a consumer. Credit scores are generated from the credit information reported by consumers and lenders to the three major credit reporting agencies: Equifax, Experian, and TransUnion.

Credit scores range from 300 to 850, with the average being around 700. The higher your credit score, the lower your interest rate will be on loans and lines of credit, as well as lower insurance premiums. Lenders can use credit scores for lending decisions, such as when you apply for a mortgage or auto loan or when you apply for a business loan. They can also be used in employment decisions such as hiring you for a job or promoting you within an organization.

Credit scores also have been shown to have an impact on an individual’s ability to build a good credit history over time.

Why does my credit score matter?

Why does my credit score matter?

Your credit score is a three-digit number that shows how well you manage your money. It's an important part of any lender's decision about whether to give you a loan — so it's worth paying attention to. Here's what your credit score means:

The higher the score, the better. The FICO score is one of the most widely used scores in America. A high FICO is generally considered good news since it means you have a better chance of getting approved for a loan and will have lower interest rates.

Bad credit isn't always bad news. Your credit utilization ratio (how much of your available credit you're using) can be affected by factors other than bad debt; for example, if your rent was late and you had to incur some costs just to keep your lights on, those costs would count against your utilization ratio even though they weren't related to paying down credit card balances or loans.

That could make up for a low FICO score — but only if you were using up all the available credit on your cards or loans before incurring these expenses (and keeping them paid off).

Determination of Credit scores by two things:

how much money you owe and how long it will take for you to pay off those debts. So if someone has a high credit score but owes very little money, their score will probably drop as soon as they miss one payment. However, if someone has a low credit score but pays off all their debts quickly, they may have an even higher score than someone who only pays their bills on time every month.

How do I check my credit score?

You can find out if you have a high enough score or if you need to boost your credit score by paying down debt and taking other steps.

The 3 major credit bureaus — Experian, Equifax, and TransUnion — all offer free online access to your credit score. The sites are easy to use and typically take less than 10 minutes to complete the process.

how does credit score work?

As soon as you log in to one of the three sites, a summary of your current score will be displayed. This is what lenders use when deciding whether or not to approve you for a loan or credit card account. Lenders also check your score when applying for new accounts to determine whether they'll be approved on their own merits or not.

If you want more detailed information about your rating, click "See My Free Credit Report" or "See My FICO Credit Score." These links will take you directly to the report page where you can see everything from the number of inquiries on each of your accounts to the number of accounts that are currently open on all three bureaus (as well as any late payments).

What can I do to improve my credit score?

The best way to improve your credit score is to pay your bills on time. The best time to start is when you open a new account, especially if it's a credit card.

Three main factors affect a person's credit score: payment history, debt,, and amounts owed. But the most important factor for people with poor credit scores is the length of time since their last payment.

The longer it takes you to pay off debts and pay down debt, the more difficult it will be for creditors to accept your request for more credit.

Best way to improve credit score?

If you're not sure how to improve your credit score, the first step is to get free credit report information. You can get a copy of your credit report from each of the three major bureaus: Experian, Equifax, and TransUnion.

Once you've received copies of your reports, you'll want to look at them closely. Review all accounts that show up on the reports and make sure they're accurate.

If any accounts listed on your credit report are outdated or incorrect, contact the creditor about correcting them. Making a dispute over an inaccurate account can help improve your credit score if it's disputed in time.

Conclusion

Your credit score or FICO score (named for the Fair Isaac Corporation that created it in the 1970s) is a single number between 300 and 850 that reflects the likelihood you'll pay your loan on time. That includes credit cards, home loans, car loans, and student loans. Your score will also determine whether you can get a loan at all.

Your credit report provides information to lenders about both who you are and your repayment history. It's not too hard to affect our credit scores, but there are plenty of easy ways to hurt your credit score that can be avoided.