Financial institutions and online lenders use a credit score to check your eligibility for a loan. Most landlords, employers, and insurance companies also use credit scores to decide if you are suitable to work in their organization, become a potential tenant, or become a policyholder.
You must understand how your Credit Score works. This article provides an essential Guide to Understanding your Credit Score.
A Credit Score is a number between 300 to 850; that helps to depict if a customer is worthy of or to get a loan from a financial company or a lender. It is based on your credit history, the number of accounts you have, your total levels of debt, your repayment history, and other factors.
Your credit score will be evaluated before you can get a loan from any financial institution or lending company. If you have a bad credit score, you may not be eligible for loans from some lenders.
That way, you need to understand your credit score to know if you are eligible for loans in an unexpected situation.
Guide to Understanding How Your Credit Score Works
Understanding a credit score and how it can affect your life savings if not monitored or adequately managed is significant. A robust credit score can enable you to qualify for loans with low-interest rates, get access to cash quickly, and even be given a long-term loan to repay.
A Bad Credit score can lead to high-interest rates from lenders, a lengthy decision-making process, and more. In other words, it can hinder your access to loans from financial companies and lenders.
According to Fico, it is one of the most popular analytic companies that help business owners make better decisions. A credit score of 700 and above is considered a good credit score, while a credit score of less than 670 is regarded as a bad one. The average Credit Score range by Fico includes;
- Excellent: 800 to 850.
- Very Good: 740 to 799.
- Good: 670 to 739.
- Fair: 580 to 669.
- Bad: 300 to 579.
However, other Creditors have their own Credit Score range. In other words, other lenders might use different methods to calculate your Creditworthiness.
How your Credit Score is Calculated
There are several factors that lenders use to calculate your credit score. The significant factors that have been used to check your credit score range include the following;
- Payment History.
- Length of your Credit Score.
- Types of Credit.
- New credit.
- Total amount borrowed/owed.
Lenders use the above-mentioned factors to depict your credit score. Each of the factors carries a particular percentage. For instance, your payment history carries 35%, while the total amount owed carries 30%.
Vital Guide to Improve Your Credit Score
If you have a bad or fair Credit Score, it is not the end of your life. This is because you can still improve your Credit Score to become good or even excellent. You can follow the below steps to improve your Credit Score Range;
- Pay all your bills on time because failure might affect your credit score.
- Increase your Credit Line for people who have a Credit Card account. You can call your account manager to inquire about increasing your Credit.
- Never close a Credit Card Account if you have one. Please do not close the account, but you can stop using it, as closing the account might affect your credit score.
- Check your Credit Score regularly and review your Credit Score report yearly. Periodically checking your credit score is essential, as this will help you know if you are progressing. Finally, review your credit score annually to check your progress for that year.
Conclusion
A Good Credit Score will help you get loans quickly at low-interest rates during unexpected circumstances. You need to learn and understand your Credit Score regularly and annually.
Remember that a bad credit score might hinder you from getting loans, and you might even get the loan at a very high-interest rate.
In conclusion, learn and understand your Credit Score and work to get a good Credit Score if you have a bad one now.
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