Financial institutions and online lenders use a credit score to check if you are eligible for a loan or not. Most landlords, employers, and Insurance companies also use Credit Score to decide if you are suitable to work in their organization, become a potential tenant, or a policyholder. It is imperative, you understand how Credit Score works. So, this article is aimed at showing you the important Guide to Understanding your Credit Score.
A Credit Score is a number between 300 to 850; that helps to depict if a customer is worthy for or to get a loan from a financial company or a lender. It is based on your credit history, the number of accounts you have, your total levels of debt, your repayment history, and other factors.
In order to get a loan from any financial institution or lending company, your credit score will be evaluated. If you have a bad credit score, you must not be eligible for loans from some lenders. That way, you need to understand your credit score, so as to know if you are eligible for loans during an unexpected situation.
Guide to Understanding how Credit Score Works
It is very significant when understanding a credit score, knowing how it can affect your life savings if not monitored or properly managed. A strong Credit Score can enable you to qualify for loans with little interest rates and you also get access to the cash quickly and might even be given a long term to repay back.
Whereas, a Bad Credit score can lead to high-interest rates from lenders, a long decision-making process, and a lot more. In other words, a Poor Credit Score can hinder you from getting access to loans from financial companies and lenders.
According to Fico, it is one of the most popular analytic companies that help business owners make better decisions. A Credit Score from 700 and above is considered to be a Good Credit Score while a Credit Score less than 670 is regarded as a Bad Credit Score. The average Credit Score range by Fico includes;
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Bad: 300 to 579
However, other Creditors have their own Credit Score range. In other words, other lenders might use other methods to calculate your Creditworthiness.
How your Credit Score is calculated
There are several factors that lenders use to calculate your credit score. The major factors that it been used to check your credit score range include;
- Payment History
- Length of your Credit Score
- Types of Credit
- New credit
- Total amount borrowed/owed
Lenders use the above-mentioned factors to depict your credit score. Each of the factors carries a particular percentage. For instance, your payment history carries 35%, while the total amount owed carries 30%.
Important Guide improve your Credit Score
If you have a bad or fair Credit Score, it is not the end of life. This is because you can still improve your Credit Score to become good or even excellent. You can follow the below steps to improve your Credit Score Range;
- Pay all your bills on time because failure to do so might affect your credit score
- Increase your Credit Line; for people who have a Credit Card account. You can call your account manager to make inquire about increasing your Credit.
- Never close a Credit Card Account; if you have a credit card account. Do not close the account but you can stop using it as closing the account might affect your credit score.
- Check your Credit Score regularly and review your Credit Score report yearly. It is important you check your credit score regularly as this will help you know if you are making progress or not. Then, finally, review your Credit score annually to also check your progress for that year.
A Good Credit Score will help you during unexpected circumstances to get loans quickly at low-interest rates. You need to learn and understand your Credit Score regularly and annually. Don’t forget a bad credit score might hinder you from getting loans and you might even get the loan at a very high-interest rate.
In conclusion, learn and understand your Credit Score and work to get a good Credit Score if you have a bad one now.