What is a credit score? There are many people who ask this question, even those who have already borrowed credit or have credit cards. There are plenty of commercials on TV about services that allow you to check your credit score, but what is it? Should you be concerned about it? A credit score is a number between 300-850 that helps lenders to determine how likely they are to be repaid by the person asking for credit. You may still get approved for credit with a bad credit score, but you are more likely to have to pay higher fees and interest rates. This is used in situations such as buying a car, taking out a mortgage, getting a credit card, and even renting an apartment. These are all situations in which a lot of money is involved and the lenders want to make sure that they get their money back. Additionally, all of those situations are common in the life of an average person in the United States. Because of this, credit is something that everyone should know about and understand. Part of that is understanding credit score.
As noted before, your credit score is a three digit number. Considering the wide range of numbers, how do you know what numbers are good and what numbers are bad? Essentially, the higher the number, the better the score.
Anything between 300-580 is considered a bad credit score. A score in this range tells lenders that the borrower (the person requesting credit) is not very dependable when it comes to money. Perhaps they consistently go over their spending limit or they don’t make their payments by the due date. Giving credit to a borrower in this range poses a risk to the lender.
Scores between 581-669 are considered a fair score, better than scores in a lower range, but still not great. It’s still on the lower end of the credit spectrum. So, lenders are likely to approve loans to a borrower with this score, but the borrower may be required to pay higher interest rates.
Once your score reaches between 670-739, it is considered to be a good score. This range is pretty average for U.S. consumers. There is still some risk to lenders, but it is considerably less than if the borrower had a lower score. Maybe the borrower has missed a payment here and there, but they are overall fairly dependable.
A score between 740-799 is above average. A score in this range tells the lender that the borrower is very dependable and will likely pay them back on time and won’t go over their spending limit.
Anything between 800-850 is the best credit score a borrower can have and will open up doors to prime credit cards and invitations such as citi.com/applynowdoublecash. If someone’s score is in this range, there is little to no risk to lenders. Things like loans and mortgages are very easily approved for borrowers that have this score.
With so many different possibilities for a credit score, it is important to understand how they are calculated and what a low or high credit score means. Credit scores are calculated by credit bureaus. There are three credit bureaus in the United States: TransUnion, Equifax, and Experian. Information about an individual’s credit accounts (such as a credit card) is reported to these bureaus and they calculate the individual’s score using that information. A number of different pieces of information are used to create the number that becomes your credit score. The first and most influential piece of information is your payment history. If you make all of your credit payments on time, you’re in good shape. Next is the amounts of money you owe in your credit accounts. Obviously, anyone who borrows credit will owe money in return, but what the bureaus look at in this case is how much you owe in comparison to how much credit you have available to you. If you frequently use up most of it, there’s a higher chance you’ll go over your limit. Then, they look at how long you’ve had credit accounts. Having a longer history of using credit can help make your score higher. Last, bureaus look at your various different kinds of credit accounts, such as mortgages, credit cards, and loan accounts. If you open too many credit accounts at once, lenders may see this as a greater risk. Typically, when you check your credit score, bureaus will provide reasons as to why your credit score is the number that it is. This is especially helpful to those with lower credit scores.
If you find that you have bad credit or you’re new to credit and want to have a good score, don’t worry. Your credit score changes as your credit report does. That is, if you change your credit habits, your credit score will change too. Some good habits to keep are: having a spending budget and sticking to it, keeping track of when all your payments are due, making your payments on time, and monitoring your credit score. Luckily, monitoring your credit score is easy and it doesn’t hurt your score at all. There are plenty of financial websites that allow you to check your credit score for free, as well. Be sure to monitor your credit score from the same source every time. Sometimes, your credit accounts won’t send a report to all of the credit bureaus and there will be discrepancies. In order to monitor your score and ensure that it is correct, use the same source every time. You can even get a free credit report every 12 months from each of the three credit bureaus.
Credit scores sound complicated, and they certainly can be. They can even sound scary if you’ve never looked at one before. But this article can help you get started with the basics. Having a good credit score is incredibly important. As mentioned previously, it can help you to get a lot of things that most people need or want in their adult lives. And, if you use credit wisely, you’ll have a great score in no time.