Credit Score, explained
Everything you need to know about your credit score
Your credit score is one of the most important numbers in your life. It’s a measure of how likely you are to repay your debts, and it can affect everything from your interest rates on loans to the amount of rent you’re charged each month.
But what is a credit score, exactly? How is it calculated? And what can you do to make sure yours is as high as possible?
Here’s everything you need to know about your credit score – including how to improve it if needed.
What is a credit score?
A credit score is a three-digit number that reflects your creditworthiness and is based on your credit history. It’s important to have a good credit score because it determines your interest rate when you borrow money, and can affect your ability to get a job, rent an apartment, or buy a car. Your credit score is calculated using information from your credit report, including your payment history, the amount of debt you have, and the number of accounts you have open.
Why is your credit score important?
Your credit score is one of the most important numbers in your life. It’s a reflection of your financial history and your ability to repay debt. A good credit score can help you get a loan at a lower interest rate, and it can also help you rent an apartment or get a job.
If you’re planning to buy a house or a car, you’ll definitely need a good credit score. The higher your score, the more likely you are to be approved for a loan. And if you do get approved, you’ll probably get a much lower interest rate than someone with a lower credit score.
That’s why it’s so important to keep track of your credit score and make sure it stays as high as possible.
How is your credit score calculated?
The most commonly used credit score calculation model is the FICO score, which is calculated using five factors: payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%), and type of credit used (10%). Other models, such as VantageScore, also use these factors, but may weigh them differently.
What credit score is good?
There is no one definitive answer to the question of what credit score is good. Different lenders may have different standards, and your ideal credit score may vary depending on your goals. However, you can get a general idea of where you should aim by checking out the ranges that different types of lenders typically use.
Generally speaking, you’ll want a credit score that’s high enough to qualify for the best interest rates and terms on a loan, but not so high that you’re unlikely to be approved at all. For most lenders, a score of 700 or higher is considered good or excellent. If you’re looking to buy a home or take out a large loan, you’ll probably want to aim even higher than that.
But remember that your credit score is just one factor that lenders look at when making a decision. There are many things you can do to improve your credit score if it’s not where you want it to be, such as paying your bills on time, maintaining a healthy mix of credit accounts, and limiting your overall debt load.
How to find my credit score
There are many ways to check your credit score for free. First, check with your credit card provider, they often provide a free credit score as part of your account. You can also get a free credit score from Credit Karma. These services will give you an idea of where you stand, but it’s important to note that they may not include all of the information that lenders use to calculate your score.
How to improve your credit score
There are several things you can do to improve your credit score. Make sure you always make on-time payments and keep your balances low relative to your credit limit. You should also avoid opening too many new accounts at once, and be careful about sharing your personal information with scammers who may try to steal your identity.
Here are some tips for improving your credit score:
1. Check your credit report regularly and dispute any errors.
2. Pay your bills on time, every time.
3. Keep your credit utilization ratio low – i.e., don’t borrow too much money compared to the amount of credit you have available.
4. Don’t apply for too many new cards at once.
5. Don’t close old accounts – this can actually lower your credit score.
6. Use a credit monitoring service to help you stay on top of your credit score and make sure there are no errors on your report.
Credit scores can seem confusing at first, but once you understand how they work, you’ll be able to take steps to improve your score and get the best possible terms on loans and other financial products. So make sure to educate yourself about credit scores and stay on top of yours!
Want to learn more about credit scores? Check out our Q&A with Visa Credit Expert Vrinda Gupta.