If you have ever applied for credit it is likely that you have come upon the term “credit score.” You might have a fair idea of what a credit score is, but do you know the significance and impact it has on your credit standing? Credit scores involve more than simply the digits.
Your Credit Score
Lenders and creditors refer to a three-digit number known as a FICO score. The system used to obtain this score involves data that is reported to credit bureaus: payment history, current debt, length of credit history, new credit and types of credit used. This may include information about your mortgages, the number of accounts you own, your outstanding loans, the number of recent credit checks and information from other public records. Using a formula, a three-digit score between 300 and 850 is given to you and this represents your credit score. Using this score, companies assess credit risk.
The Meaning of Your Credit Score
Within the given range from 300-850, lenders generally consider credit scores lower than 620 to be of high risk. A credit score in this range means a higher interest rate and it automatically reduces your chances of getting approval for mortgages, auto loans, credit cards and other financing resources. On the other hand, a credit score above 720 is considered to be good credit and it will qualify you for better rates.
Aside from offering better financing opportunities, a good credit score can influence decisions in other areas of your life. For example, most insurance companies take credit scores into account when assessing insurance coverage. Those with a good credit score may be offered better coverage and lower premiums because they are more likely to remain up to date with their payments. Also, employers have begun using credit scores as a means of pre-screening applicants and potential candidates for hiring.
How to Improve Credit Scores
A low credit score can be improved. Take action to repair the damage that having low credit can inflict!
Pay bills on time. This is probably the most important thing you can do to improve your credit score. Delayed payment of bills has a major negative impact on credit scores.
Keep balances low on credit cards. High outstanding balances on multiple cards will negatively affect credit scores.
Keep an eye on credit information. Review your credit reports regularly to watch out for any false data.
Eliminate all negative items on credit reports. Some items will just take time to erase, but errors can be disputed, and there are professionals who can help remove some damaging items.