According to consumer credit reporting agency, Experian, a credit score of 700 or above is considered good, and scores above 800 are excellent. With the average credit score falling between 600 and 750, if yours isn’t quite there, it can have a negative impact on how creditors feel about lending to you.
Higher credit scores allow for more lending opportunities – not just in the amount you’re capable of being lent, but also in achieving lower interest rates, thus costing you much less over the course of the loan.
A lower credit score could mean you are denied for that loan you need to purchase a vehicle, or if you are approved for the loan, it could strap you to a high interest rate, driving your monthly payments up far much more than if your credit score were better.
So What Does My Credit Score Mean, Anyway?
Your credit score is a representation of your credit risk (or how dependable you will be in paying back the lender). It is comprised of a FICO score and ranges from 300 to 850. The higher your score, the lower your credit risk – allowing you better opportunities in borrowing funding and obtaining low interest rates.
What Information is Used to Calculate My Credit Score?
Your loan payment history has a large effect on your credit score. In fact, it serves as 35% of your FICO score. When you miss a payment or pay creditors late, that contributes to lowering your credit score. And of all factors to your FICO score, this category is the hardest to repair. So it’s important to make sure you pay your lenders on time.
Another large portion in calculating your credit score is how much you currently owe. In fact, this takes up 30% of your FICO score. The more you owe in relation to your available credit, the lower your score. For instance, if you have a credit card with a $2,000 limit, and you currently only have $300 available to you on that card, then your credit score will be lower to reflect the lower available credit.
Other pieces that factor into your credit score: how many accounts you have open, how long you’ve had credit history, and if you have a good mix of credit accounts (car loans, student loans, home loans, credit cards, etc).
How Do I Raise My Credit Score?
It’s important to know that when you’re trying to improve your credit score, it will take time. There is no quick fix. But with dedication and determination, you can raise it to a point of good standing and open up opportunities for you in the future for reduced interest rates and higher loan amounts.
Ways you can work on increasing your credit score:
- Pay your bills on time and avoid bills going into collections. Note: Oftentimes you can call a lender and make financial arrangements to prevent your bills from being sent to collections.
- Get your credit card balances low and keep them there. Remember that 30% calculation on your FICO score based on available credit? This is where it counts.
- Don’t open new accounts just to add credit to a short credit history. It’s better to slowly build your credit account types over time rather than open several at once just to have credit showing.
No matter what, improving your credit score will take time and discipline. The important factor is to show that you’re paying your bills on time and managing your credit responsibly. You can also keep track of your credit score, how it’s improving, and get tips on ways you can work towards raising your score with free apps like Credit Sesame.
For services that help you manage your money quickly and easily, stop by your nearest South Suburban Currency Exchanges today!