Credit Score Information: Guide to Credit Scores

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Your credit score shows how reliable you are when it comes to paying your obligations (creditworthiness) and it is one of the most crucial aspects of your financial health. With an impressive score, you will have an easy time getting loans, lines of credit, credit cards, and other credit products approved. You are also likely to get better interest rates and terms when getting credit. Excellent credit scores could even enable you to pay lower deposits for utilities like gas, water, phone service, and may make it easier to secure an apartment to rent.

Factors that affect your credit score

Credit scores are calculated by credit bureaus, and we have three major bureaus: Equifax, TransUnion, and Experian. You can get a credit score from each of the credit bureaus, so it is important when talking about credit scores to know which one you are referring to.

Lending institutions share borrower’s information with credit bureaus, which then compile them into credit reports. The information shared includes things like the balance of your accounts, repaid amount, outstanding amount, and the status of your account (current or past due). Each time you apply for a loan or other form of credit and the lender requests for your credit report from a credit bureau, it is added to your credit report as a “hard inquiry.”

The most popularly used credit score is the FICO score, and it considers how much debt you have, your repayment pattern and other factors. It ranges from 300 (very poor) to 850 (exceptional). The following factors determine your score and contribute the percentage shown of your score:

  •   Payment history (35%) – Considers if you have missed or defaulted on your obligations
  •       Amount of debt (30%) – Considers the total debt and if you have hit the credit limit.
  •       Length of credit history (15%) – Checks whether you have a long history of borrowing and repaying or if you are new to credit
  •       New credit (10%) – factors if you have applied for new credit recently
  •       Types of credit (10%) – Whether you have a healthy blend of different debts like credit cards, auto loans, home loans, and others

Ways to improve your credit score

To improve your score, it will take some conscious effort and time. Here are some methods you can use:

Examine your credit reports

You need to get copies of your credit reports regularly from the major bureaus and review them for any errors that may be hurting your score and dispute them to be rectified.

Timely payment of bills and debts

With payment history being the biggest contributor to your credit rating, you need to ensure that you have paid off the debts on your credit report. Avoid late payments or defaulting at all costs, and you can do this by automating your payments from a bank account and having due-date alerts for your payments.

Engage credit repair experts

Sometimes your credit score could be low and you need it improved quickly. One way you can do this is to engage credit repair experts who will advise you and help you to get and buy tradelines, which will help to boost your credit score quickly. You need to work with trusted companies to avoid being scammed out of your hard-earned cash or getting raw deals.

Minimize new credit applications

Many hard enquiries within a short period can plummet your score because lenders can take this to mean that you need cash since you are in a financial crisis, so you pose a bigger risk of default.

Bottom line

You need to understand your credit score, what factors influence it, and how you can improve it since it is a critical aspect of your financial health. Make it a habit to check your credit reports and credit score regularly to be in charge of your financial wellbeing so that you can achieve your goals.

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