What to know about your credit score?
A credit score ranges from 300 to 850; it is a number that represents the creditworthiness of an individual. Lenders use it to evaluate the likelihood of a user paying back their loans or credit cards. The better your score, the more likely you will be approved for a loan or a credit card with a higher amount. Several important factors determine your credit score; we will go over four critical elements in this post.
What factors determine Credit Score?
1. Payment history
This is one of the most vital elements in calculating the credit score of an individual. Your payments history accounts for 35% of your FICO Score (credit score created by the Fair Isaac Corporation). So, if you have a great payment history, your credit score will remain on the higher side of the spectrum. However, it’s essential to be mindful that multiple missed payments can decrease your score.
2. Amount owed
This amount represents how much of your available credit you are utilizing. According to credit unions, this accounts for 30% of the FICO score. It is vital to use less than 30% of your available credit to be in good standing with creditors.
3. Credit history Length
The longer your credit history, the better your credit score. This calculates the total period for which an individual has held a credit account. This is why it is important not to close credit card accounts with which you have a long history. Doing so will certainly impact your credit history.
4. Credit Mix
This factor represents how well you can manage a diverse portfolio, which includes different types of credits cards and loans. Having a variety of credit accounts will contribute to a higher score. This does not mean to sign up for multiple credit cards when you start; it is crucial to start with one card and see how well you manage it. This will help you avoid getting into credit card debt.
What are credit score ranges?
Following are examples of credit scores by FICO
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
Scores ranging from 700 and above are considered outstanding. This also means that the individual borrowing a loan will often receive a lower interest rate from the lender than someone with a credit score below 600. There are several ways for you to stay up to date with your credit score. For example, you can use your bank app, your credit issuing authority, or credit unions. My favorite way to keep track of my credit score is through my Credit Karma account.
I hope this post helped you to understand better what a credit score is. I would love to hear how you manage your credit score; please share in the comments below.
