Credit Scores – why are they important?
A credit score is a three-digit score between 300 and 850 that summarizes a consumer’s creditworthiness based on their credit history. The scores are typically used by potential lenders to determine a consumer’s creditworthiness. The score is calculated based on several factors including a consumer’s number of open accounts, total levels of debt, repayment history. Depending on the company analyzing one’s credit, each factor may carry a different weight when determining the score.
Typically, credit scores from 580 to 669 are considered fair, 670 to 739 are considered good, 740 to 799 are considered very good, and 800 and up are considered excellent, though the ranges can vary depending on the credit scoring model being used.
There are three credit reporting bureaus in the United States: Equifax, Experian, and TransUnion. You can access your credit report by visiting AnnualCreditReport.com.
There is also a different type of credit score called a FICO® score. FICO refers to Fair, Isaac and Company. FICO uses a slightly different scoring model, but it is still based on a scale from 300 to 850.
Maintaining a high credit score is important because it can impact your ability to get a loan in the future. You may need a loan for things like a new car, boat, motorcycle, RV, house, home equity loan, line of credit or even a personal loan (like for college tuition). Credit scores can also be influential for landlords when deciding who they will rent their apartments out to. The higher the credit score you have, the more you are considered trustworthy when it comes to paying the money you owe. Higher credit scores are more appealing to lenders and they’re more likely to trust you with a higher loan amount. If you have a higher credit score, you may also be eligible for lower rates which can save you a lot of money in the long run.
There are several ways to build your credit score
Avoid closing accounts. Closing accounts can also hurt your score because any good credit you have built up with a certain account will be removed with a closed account.
If you’re interested in trying to improve your credit score, here are a few things you can do: