Everything You Need To Know About Credit Scores and How to Improve Them

138 Views Updated: 14 Dec 2018
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Everything You Need To Know About Credit Scores and How to Improve Them

All of us have our own credit score. A credit score can indicate the disparity between being rejected or approved for credit and a high or low-interest rate. Having a good credit makes things easier for you to be qualified for an apartment rental and even assist you in utilities connected without a deposit.

However, not everyone is familiar with the connection of a poor credit score. If you’re not aware of taking good steps in keeping your credit score in a good state, you might regret it later on eventually. In this article, we will go in-depth for you to understand what a credit score is and we are also going to provide you with some effective ways on how you can improve your credit score.  

What is a credit score?  

It is a three-digit number created by a mathematical algorithm using information in your credit report. It predicts risk, particularly, the probability that you will break your credit obligations in the 24 months after scoring. There are three main credit bureaus– Equifax, Experian, and TransUnion– who makes credit reports. There are various credit-scoring models used by the market, but the only one that dominates is the FICO credit score. FICO scores range from 300 to 850, in which the higher the number you get, the lower the risk is.  

How are credit scores created?  

The credit bureaus are the ones who create your credit reports as mentioned above. They can also calculate scores for you established on their own proprietary models. Your scores usually depend on things like how frequently you meet your payments on time and how many accounts you have in good standing. Take note that your score will never be based on personal information like your gender, nationality, religious beliefs, marital status, or race.  

What are the elements that go into my credit score?  

According to myFICO.com, information from your credit report goes into five paramount categories that make up a FICO score. Their scoring model will weigh your payment history and debt owed more heavily than the rest of the factors.  

35% Payment history: This is your account payment information, such as any delinquencies and public records.   

30% Amounts owed: The amount of how much you owe on your accounts. The total of available credit you’re using on revolving accounts is heavily weighted.  

15% Length of credit history: The period of time you opened accounts and time since account activity.  

10% Types of credit used: The multiple accounts you have including revolving and installment.  

10% New Credit: Your search for new credit, such as credit inquiries and number of recently opened accounts.  

Any personal or demographic information about you such as race, age, marital status, address, income, and employment doesn’t affect the score.  

What are the results of having a poor credit score?  

The repercussions of having poor scores will negatively affect your life in many ways. Having a poor credit score means that you are going to have a difficult time obtaining a loan (cash loans, personal loans, secured or unsecured loans) if you ever need one. Also, you will have a tougher time applying for certain jobs. Just think that your credit score says a lot about you. It’s important that you can guarantee that your credit score remains in good condition from the beginning to end.  

How can I improve my credit score?  

There are plenty of ways you can do to enhance your credit score. Most importantly, you must recognize that you need to pay down your best. Immediately remove those credit cards and pay them off as fast as you can.  

You can also consider debt consolidation. This is a great option for people who have lots of separate debts. With debt consolidation, your debts will be combined into a single one and more effortless to fix in the future.  

How can I protect my credit score?  

After you have managed to get your score in a good condition, you may want to make sure that you pay your bills on time. Doing this will keep your score in a good state and protection. If you fail to repay on time, your credit score will take a hit. Also, you’ll be paying additional fees. So beware of taking out loans unless you can guarantee that you can pay them off.  

How can I check my credit score?  

The federal law has a decree for consumer’s right to a free credit report annually from each credit reporting agency, but of course not to a free credit score. You can try using a FICO score estimator, which is free of charge in getting your score range. However, for you to obtain the exact number, you have to buy it from a score provider, such as myFICO.com or one of the reporting agencies.  

On the Note 

Don’t hesitate to check your credit score for errors. People make mistakes too. So, there is a possibility that the credit reporting bureaus can make inaccuracies on your credit reporting. There is nothing wrong in checking, in fact, it’s better if you look for errors. And if you ever find one, you can dispute them with the three reporting agencies.  

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