I’ll be honest. Until a few years ago, I didn’t really know what a credit score was, why it was important, or how it impacted finances.
Here are the basic essentials about credit scores.
What is a credit score?
A credit score is a 3-digit number that reflects how you utilize credit, like credit cards, car loans, mortgages, and just regular bills.
This number is generated by information on your credit report. Think of your credit report as like a report card that goes into detail about various ways you could improve. Your credit score is the number to show whether you earned an “A” or an “F.”
Why credit scores are important
It’s important to have good credit. With a bad credit score, you could be denied an apartment, get a much higher interest rate on a mortgage, and even be denied the chance to get cable or car loans.
When you commit to a service or borrow money, companies want to know that you’ll be able to promptly pay them back. A low credit score shows you as a risk, and many lenders are unwilling to work with you.
What goes into factoring your credit score?
5 different factors go into determining your credit score, which are as follows:
- Payment history
- Amount of debt owed
- Types of credit used
- Amount of new credit
- Length of credit history
Payment history accounts for around 35% of your credit score, so therefore is the most important thing to focus on. So in short, pay your bills!
If paying your bills is an issue, you need to focus on lowering your expenses and raising your income. Starting a blog is one great way to create income. Learn how to start your own blog here.
Using credit cards wisely, having a low credit utilization score, and having long-term lines of credit open all impact your credit score, however, they don’t impact it nearly as much as payment history. So if you’re just starting to focus on raising your credit score, figure out how you can pay your bills on time.
What your credit score means to lenders
- <500: Very bad
- 500-549: Bad
- 550-599: Poor
- 600-649: Average
- 650-699: Good
- 700-749: Very good
- >750: Excellent
How to find your credit score
The law mandates that you have a right to a free credit report every year, but unfortunately, that doesn’t include a free credit score.
Luckily, most credit cards allow you to see your credit score on your monthly statements. You can also use creditkarma.com to find a free score.