iQuanti: Your credit score is one of the most important pieces of financial information about you. It's used by lenders to determine whether to give you loans, and it can also affect your interest rates and credit limits. Let's dive deeper into how your credit score works, what a good score is, and what affects your credit score:
How your credit score works
Your credit score is a number lenders use to evaluate your creditworthiness. It's important to have a good credit score so you can qualify for loans and favorable interest rates. A credit score is calculated based on your credit history, which is a record of your repayment activity on credit accounts. The higher your credit score, the more likely you are to be approved for a loan and to get better terms.
What is a good credit score range?
A good credit score generally falls in the range of 650 to 700. However, the exact definition of "good" can vary from lender to lender. Some lenders may consider a credit score of 680 to be good, while others may require a score of 700 or higher. If you're not sure where your credit score stands, you can check it for free on credit monitoring websites like Credit Karma and Credit Sesame.
What factors affect your credit score?
Here are the factors that impact your credit score:
- Payment history: Your payment history is one of the most important factors in determining your credit score. Lenders want to see that you have a history of making on-time payments. If you have missed payments or made late payments in the past, it will negatively impact your credit score.
- Credit utilization: Credit utilization is another important factor in determining your credit score. This is the percentage of your available credit that you are using. For example, if you have a credit card with a limit of $1000 and you have a balance of $500, your credit utilization is 50%. It is important to keep your credit utilization low to maintain a good credit score.
- Credit age: Credit age is another factor that affects your credit score. The longer you have been using credit, the better it is for your credit score. This is because lenders see people with long credit histories as being less risky borrowers.
- Types of credit: This is a mix of different types of credit accounts, such as credit cards, mortgages, and so on. Having a mix shows that you can handle different types of credit responsibly.
- New credit: Opening new credit accounts can temporarily lower your score, because it's seen as more risk by lenders. But if you manage your new credit well, it will eventually help improve your score.
The bottom line
Improving your credit score is key to qualifying for loans with favorable terms. If your credit score is below 650, you can take steps to improve it by paying your bills on time, maintaining a good credit history, and using a credit monitoring service. With a little effort, you can boost your credit score and get access to the financing you need.
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Original Source: What is a Good Credit Score?