A credit score is something that many of us are loathe to check, for fear that we don’t measure up. While it can certainly be intimidating to see a low number, it’s important to know that there are things that can be done about it.
A credit score is a measurement of our credibility with our finances. It is how credit reporting agencies perceive our creditworthiness. Credit scores have plenty of latitude. They can be as low as 300 and as high as 850. This is a wide range.
Typically, a bad credit score is one less than 600, and an excellent credit score is one above 750. Within that spectrum are many subcategories including poor credit (600 – 649), fair credit (650 – 699), and good credit (700 – 749).
Nobody wants a substandard credit score because it reflects poorly on the individual in so many ways. Every time a person applies for a mortgage, personal loan, automobile loan, mobile phone contract, Internet contract etc., a credit score matters. But more importantly, every time a credit check is run your credit score is affected too.
What Do Lenders Look for in Your Credit Score?
It’s not just the number that matters, it’s everything that makes up your credit score. A lender will look at your employment history, your list of addresses, your available credit, the number of new credit accounts you have opened in the past 1 year, the number of inquiries that have been conducted, liens, judgments and defaults, your payment history and so much more. It should be remembered that credit reports take all of these factors into account. It’s possible that one lender will accept a certain score as a fair credit score, while another will accept that as a good credit score – often, it is based on individual preferences.
Some lenders will have a blanket policy that approves borrowers with credit scores of 680+, while others will require a minimum credit score of 700. Fortunately, you can easily check your credit report for free. All of the major credit reporting agencies including Equifax, Experian, and TransUnion are mandated by law to provide people with 1 free credit report per annum.
It is in your best interests to pull your own credit report and check for any inconsistencies, falsely reported claims, judgments or identity theft. Once you have your credit report in hand, you can proceed to the next step of applying to a bank and non-bank lenders for a line of credit.
Remember, that different credit agencies have different rating scales. Equifax has a credit score that ranges from 280 on the low end to 850 on the high-end. Experian has a credit score that ranges from 330 through 830, while TransUnion has a credit score between 300 through 850. The standard FICO score starts at 300 and goes as high as 850.
By understanding the top and bottom ranges of your credit score, you will know what lenders will be seeing when they run your credit. Typically, you qualify for a lower rate of interest when your credit score is higher. This is not always the case, but it holds true most of the time. You will also be privy to discounted insurance premiums.
Failsafe Ways to Improve Your Credit Score
Credit scores change regularly. That’s why it’s important to stay abreast of these changes by regularly checking your own credit score. You can boost your credit score by making regular payments on your bills. If there are any accounts that you have neglected, contact the lender and arrange to make payments as quickly as possible.
Sometimes, you may have credit that you don’t use and this may also work against you. Lenders have been known to cancel open lines of credit that have gone unused for too long. This will decrease your available credit line and possibly work against you with your credit score. Here are some of the things that you can do to boost your credit score over time:
Make regular payments on your credit facilities
The longer your credit lines have been open, the better your credit score
Limit the number of new credit inquiries that are conducted
Ensure that you have a diversified credit portfolio (credit cards, auto loans, student loans mobile phones, retail credit, mortgages etc.)
What is your credit utilization? The lower it is the better for you
Credit scores are dynamic. They are not something you are born with and they don’t stay the same regardless of what you do. You have to manage your financial resources well by being a responsible individual. Too little credit utilization is bad, too much credit utilization is bad – somewhere in between those extremes bodes well for a healthy credit score.
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