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What is a Credit Score?

Your credit score can have a significant impact on your life. It will influence whether you apply for a loan, credit card, and the interest rate that you pay on loans. Sometimes, it even determines whether you are able to get the apartment you desire.

Higher credit scores can help you get a loan with lower rates of interest. Borrowers who have credit scores of 750 or higher have a lot of loan alternatives. They can even get 0% financing for cars and credit cards.

It is important to understand what credit scores are and how they work. 

What is the definition of a credit score?

A credit score is a measure of how well you manage your money. It consists of three-digit numbers, typically based on a scale of 300 to 850. It estimates your likelihood to repay debt as well as paying bills.

How are credit scores calculated?

Your credit score is calculated using information pertaining to your credit accounts. Credit-reporting agencies collect this data and compile it into credit reports. Equifax, Experian, and Transunion are three credit reporting agencies. 

Ranges of credit scores

Although each creditor sets their own set of criteria regarding the acceptable scores they will accept, the guidelines include the following:

  •  A 720-point score is considered to be excellent credit.
  • Good credit is defined as a score of 690 to 719.
  • Fair credit scores are those with scores ranging from 630 to 689.
  • Scores below 629 are considered poor credit

 

Creditors will consider other factors than your credit rating when deciding whether or not to give your application approval

What’s the difference between a FICO score and VantageScore?

Credit scoring is dominated by two businesses. FICO is a well-known score. VantageScore is its primary rival. Both generally use credit scores ranging from From From 300 to 850. They often move together: A high VantageScore will likely lead to a high FICO.

Your score will depend on the credit bureau that provided the information from a credit report. Each bureau receives different account activity from every creditor, so each credit report is unique.

What factors can negatively impact your credit score?

Payment history

It is important to pay your bills on time. Otherwise, it can lead to costly penalties. A payment that is more than 30 days past the due date will remain on your credit report for many years.

Outstanding debts

It is a good idea to not use more than 30% of your credit limit. There are several ways to reduce your credit card spendings.

Credit age

Your credit score will improve the longer you have credit.

Credit mix

Many people are happy to have both a conventional loan or a debit or credit card

What credit you’ve applied for recently

Your credit report will be subject to a hard investigation if you recently applied for a loan. This may cause a temporary drop in your score.

How to improve credit

These factors are key to your score and can help you improve your score.

  • All bills must be paid on time
  • Balances on credit cards should not exceed 30% of their maximum capacity.
  • To protect your account’s average age, keep your old credit cards active. 
  • You might also consider having both Installment loans and credit loans at the same time. 

 

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