Getting a great job and saving money is not enough to guarantee your financial security. You will most likely also need to have a good credit score. That’s because banks, businesses, credit card providers, and landlords (and sometimes even employers) look at your credit score when considering you for loans, rental agreements, and insurance packages. If you’ve never checked your credit score and aren’t too sure of what it is, this guide is for you. Read on to know the basics of your credit score.
What Is a Credit Score?
A credit score is a three-digit number that tells financial institutions how credit-worthy you are – a high score will help you get competitive rates, while a low score will make borrowing more expensive.
Credit scores have a range between 0 and 850. Within this range there are four levels:
– Bad (300 to 629)
– Fair (630 to 689)
– Good (690 to 719)
– Excellent (720 to 850)
How to Improve Your Credit Score
Having a mix of different types of credit accounts: Your score will increase when you have a balanced ratio of credit to debt. Being free of debt isn’t good enough, you must prove your ability to borrow money and then make on-time repayments. If you have loans, credit cards, and a history of repaying utility bills on time every month, lenders will consider it a good sign.
Maintaining low credit card balances: If you consistently pay off the outstanding dues on your credit card on time, you can achieve a low balance. Once you have more credit available to you than the amount of debt you have left to repay, your credit score will go up.
Establishing a long credit history: It’s best to start building credit as early as possible because your score will improve the longer you work on building credit.
There are two main credit scoring companies in the U.S.: FICO and VantageScore. These companies look at your credit report (created by any of the three companies – Experian, Equifax, and TransUnion) and generate your credit score after analysis. Your credit score will indicate just how credit-worthy you are.
It’s best to keep a check on your credit score on a monthly basis so you are aware of any major changes to your score.