Credit Score Basics
We all have heard about our credit score, but most people aren’t sure about how it’s calculated and how it affects your finances. Understanding the factors that go into credit score calculation and ways you can build up your credit can help set you up for financial success.
So what is a credit score anyway? This three-digit number, between 300 and 850, estimates how likely you are to repay debt. Your score is calculated by pulling information from your credit report, such as:
- Money you owe on outstanding loans
- Late and on time payments
- Length of time you’ve had credit (the longer the better)
- Amount of new credit requests
The higher your score, the better your credit. Here’s a breakdown of what your FICO credit score means:
- 800+ – Exceptional credit
- 799-740 – Very good credit
- 739-670 – Good credit
- 580-660 – Fair credit
- Under 580 – Poor credit
The better your credit the more willing a bank is to lend you money because they feel confident you will make your payments. If your credit is lower, it doesn’t mean you will not get approved for a loan or credit card, however you will likely pay a higher interest rate than someone with higher credit.
So how do you raise your credit score? Here are a few things you can do to help your credit:
- Pay bills on time
- Pay off debts
- Keep balances low on credit cards
- Don’t apply for too much credit
- Dispute any inaccuracies on your credit report
Make sure you check your credit report annually. This will allow you to keep track of your score and make sure there are no inaccuracies on your report that would negatively affect you. Visit annualcreditreport.com to request a copy of your report. Typically, you are allowed to access this once a year.
By establishing and maintaining good credit, you are setting yourself up for financial success.