What is a Credit Score?
Credit scores are essentially a 3-digit number, usually from 300 to 850. meant to reflect your credit risk or the probability that you’ll pay your bills in time.
The credit scores can be calculated based on the information contained in your credit reports, which include your credit history, your payment history, and how much debt you’ve incurred as well as the duration of the history you have with credit. Higher scores indicate that you’ve shown ethical credit behavior in the past. This could make prospective creditors and lenders more confident when considering the demand for credit.
Credit score ranges differ depending on the model of credit scoring used, but they are typically identical to the following:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Benefits of Having a Good Credit Score
Low-interest rates on credit cards and loans
Interest rates are just one of the charges you must pay for borrowing money. The rate you pay is often directly related to your credit rating. When you’ve got a great credit rating, you’ll nearly always be eligible for the highest interest rates and be charged less for credit card balances and loans. The lower your interest, the quicker you’ll be able to pay off your debt, and the more funds you’ll have to pay for other expenses.
Better chance for credit card and loan approval
People with poor credit scores usually do not apply for an additional credit card or loan because they’ve previously been denied. In addition, a high credit score isn’t a guarantee of approval because lenders look at other aspects, such as your income and the amount of debt you have. But a high credit score will increase your chance of getting approved for new credit. That is, you can apply for credit or a loan with confidence.
More negotiating power
A credit score that is high gives you the opportunity to bargain for a lower interest rate on a credit card or new loan. In addition, if you need greater bargaining leverage, you can benefit from other attractive offers from different companies based on your score. Conversely, if you’re a credit card holder with poor credit scores, creditors aren’t likely to agree to terms for loans, and you’ll be denied alternatives to credit or other offers.
Get approved for higher limits.
Your ability to borrow is contingent on your income and credit score. One advantage of having a great credit history is that banks will be willing to allow you to get more money since you’ve shown that you repay what you borrowed promptly. It is possible to be granted loans even with a low credit score; however, the amount you can borrow will be smaller.
Easier approval for rental houses and apartments
More landlords are making use of credit scores in their screening of tenants. A low credit score, particularly due to eviction from the past or unpaid rental debt, could negatively impact the chances of getting an apartment. On the other hand, a good credit score will spare you time and effort in finding a landlord that can accept renters with a poor credit score.
Better car insurance rates
Include auto insurance companies on the list of companies that apply a negative credit rating against you. Insurance companies use the information on your credit score and your insurance history to calculate your risk score for insurance, which is why they typically penalize those with poor credit scores, resulting in higher insurance rates. If you generally have a high credit score, you pay lower insurance premiums than those with lower credit ratings. 1
 Get a cell phone on contract with no security deposit.
Another disadvantage of poor credit history is that mobile phone providers won’t offer you an agreement. Instead, you’ll be required to pick one of those pay-as-you-go plans with higher-priced phones. At the very least, you’ll have to make additional payments on the contract until you’ve established your relationship with the company. However, good credit holders can avoid paying a security fee and get a reduced purchase price for the most recent phones when they sign the contract.
Avoid security deposits on utilities.
Security deposits range between $100 and $200, which can be an enormous hassle when moving. There’s a chance that you’re not planning to move anytime soon, but a natural disaster or an unexpected event can alter your plans. A high credit score will mean you don’t need to make a security deposit when you sign up for the utility service under your name or transfer your service to another place.
What is a good credit score?
A good credit score falls between 670 and 739, according to FICO. FICO claims that scores between 580-669 are considered “fair,” and those between 740-799 are considered “very good.” Anything over 800 is thought of as “exceptional.”
How to check your credit score
There are many ways to determine your score on credit. But, in reality, there are at very least four ways to check your credit score, as per the Consumer Financial Protection Bureau:
Check your credit card, bank, and loan statements. Many financial institutions offer credit scores at no cost to their customers. You’ll usually see scores on the monthly statements or when you log in to your online account. It is possible that you will need to sign up for the service in order to get your scores.
Use a no-cost credit scoring service. Make sure you know the terms of a business prior to signing up for their credit score program. While some scoring providers provide free credit scores, others offer them only to those who pay monthly costs for their monitoring services.
Buy credit scores from a credit bureau or other provider. You can purchase credit scores from any of the three credit reporting agencies, Equifax, Experian, or TransUnion. The scores are also accessible through other providers that are paid, including FICO as well as VantageScore.
Contact a non-profit counselor. Credit counselors can frequently provide you with your credit score, report for no cost, and go over the information. They can also help you find a credit counselor. National Foundation for Credit Counseling is a great source to locate the right credit counselor for your local area.
How to Get a Perfect Credit Score
If you’re hoping to improve your chances of obtaining an ideal credit score, you should follow these steps. Although there’s no guarantee that you’ll be able to achieve perfect credit, however, at a minimum, you can increase your credit score.
1. Never miss a payment
Because the payment history is responsible for 35 % of your score, It is crucial to pay all bills promptly. If your payment is 30 days overdue, your creditors can be able to report your payment to three of the three main credit bureaus–Experian, Equifax, or Transunion. It could affect your credit score, and late payments can be reported to your credit report for up to seven years.
To reduce the chance of not making a payment, enroll in autopay or utilize an application for managing bills to receive reminders and see all due dates simultaneously.
2. Keep your credit utilization rate low
The second largest credit score indicator can be your percentage of utilization–it is responsible for 30 percent of your credit score. The credit utilization ratio is the credit utilization you’ve used compared to the available amount. Although it’s generally advised to keep your credit utilization ratio under 30 percent, a ratio that is closer to 0% can help increase the credit rating more.
3. Don’t apply for credit too often
If you make an application for credit, a lender checks your credit to determine whether you qualify, causing an inquiry into your credit to be displayed on your credit report. The inquiry is on your credit report for up to 2 years. According to FICO, the new credit inquiry could lower your score by as much as five points. Even though the impact of this kind of credit check diminishes in time, it may hinder the possibility of having a flawless credit score.
4. Review your credit reports
Credit report errors happen. If a creditor submits incorrect or incorrect to agencies that handle credit, this may harm your score on credit. To identify and correct any reporting errors, check every year.
You can view all three of your credit reports for free by visiting AnnualCreditReport.com. Normally, you can access them for free once a year. But, because of the Covid-19 pandemic, you will get daily reports for free up to December. 31st 2022.
5. Become an authorized user
If you do not have a long credit history, you can ask someone in your family with good credit to put you as an authorized user on their old credit cards. Your score may increase in the event that the credit card company sends information to credit bureaus regarding authorized users. But the drawback can be the fact that your score may lower if the primary account holder fails to pay a bill and it’s included in your credit reports.
What is the highest credit score?
The highest score for credit is 850. This is the top score as per the FICO list. FICO scores vary from 300 to 850. less than 580 is considered poor credit, while 740 or more is considered a very high credit score or outstanding credit.
Conclusion
Of course, lenders have different requirements, and the experience you have with them could be different. It is possible that you have a great credit score; however, an unsatisfactory public history on your credit report could hinder your chances of being approved for a loan. Although credit scores don’t take into consideration your income, however, lenders do. However good your credit score, the lender won’t consider approving you if there are risks to your credit, like your inability to pay back.
Whatever your position at the bottom of the list, you must keep in mind that there are many elements that can damage your credit as well as help you improve your score. If you’re having trouble overcoming your credit card balance, speak to one of our certified credit experts to help to pay off debt more quickly and improve your financial situation.
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