Are you finding it hard to access loans and credit facilities because of a low credit score? Financial lenders look at your credit score when assessing whether you qualify for a loan, and how you qualify. Credit scoring has been around for a long time, especially in the US and Europe with lenders increasingly relying on it as more personal financial data become available. Your credit scores will determine if you qualify for a new credit card, how much mortgage you can access, a car loan, and other important financial facilities that you need. If you are wondering how to improve your credit score it is important to understand how it works.
what is a good credit score?
A good credit score is important for anyone who wants to buy a house, get a loan, or take out a business loan.
A good credit score is an indication of your financial health. It is the number of years you have had a steady job and paid your bills on time. You need to have an excellent credit score if you want to be considered for loans and also be able to comfortably borrow money in the future.
A good credit score can help you get approved for loans such as mortgages, car loans, and personal loans.
what is considered a good credit score?
Credit scores are a way for lenders to evaluate the risk of lending to an individual. This helps them decide whether or not to lend money to a person and what interest rate they should charge. Credit scores are used by banks, credit card companies, landlords, and employers.
A good credit score is typically between 740 and 850. The higher the number is, the better your chances of getting approved for a loan or renting an apartment.
This credit score can be calculated through different factors such as payment history and debt-to-income ratio.
what is a great credit score?
Your credit score is one of the most important numbers in your life. A high credit score means you're a responsible borrower and you'll likely get approved for loans and mortgages at favorable interest rates. Conversely, a low credit score could mean you won't be able to borrow money at all, or you'll have to pay higher interest rates.
How does credit scoring work?
The need to assess the creditworthiness of loan applicants led financial institutions to come up with a system to try and assess different applicants. The earliest and most commonly applied credit scoring system is the Fair Isaacs Corporation (FICO) scoring.
Credit reporting agencies also known as credit bureaus do this scoring depending on the personal financial information they pull from sources such as banks, courts, utility companies, and other public information.
FICO scoring assigns a creditworthiness label depending on how much you score from 300-850. The scoring is done as follows;
| Credit Score | Rating | % of People | Impact |
|---|---|---|---|
| 300-579 | Very Poor | 17% | Applications will be rejected for any financial facility. |
| 580-669 | Fair | 20.2% | Applications are reluctantly accepted but the applicant has to pay very high-interest rates and a down payment. |
| 670-739 | Good | 21.5% | Applications are widely accepted, but interest rates remain high. |
| 740-799 | Very Good | 18.2% | Applications are quickly accepted at competitive rates. |
| 800-850 | Exceptional | 19.9% | Exceptional Lenders are willing to offer favorable interest rates and other incentives to do business with you. |
The three major credit bureaus in the US: Equifax, Experian, and TransUnion rely on this type of scoring when issuing credit reports. They cooperate on a platform they call Vantage Score. The latest scoring method is Vantage Score 3.0 which follows the scoring guidelines outlined above.
What factors affect your credit score?
- Payment history, including late payments and defaults.
- Total debts owed
- Bankruptcy records
- Type, age, and number of credit accounts
- Inquiries on credit reports
- Recent credit accounts opened
The VantageScore weighs each of these factors differently;
- Most important: Payment history
- Very important: Credit usage
- Somewhat important: Length of credit history
- Somewhat important: Credit mix and types
- Less important: Recent credit
Improving credit scores
If your credit score is below 739 or a GOOD rating, it is important to start considering tactics to improve the scores. Financial experts advise on the following;
1. Tracking your credit rating
The first thing to do is how check your credit score. You can do this by requesting your once-per-year free credit report from the credit bureaus. There are a few things you should be attentive to about your credit report;
Erroneous entries, for example, loan repayments that are marked late even when you have cleared the loan
Fraudulent entries, for example, credit card usage that you cannot remember and verify. Financial identity theft should be reported at once.
If there is anything amiss with your credit report, you should raise a dispute with the credit bureaus immediately. If they are unresponsive, you can have your lawyer threaten legal action.
2. Keep tabs on credit card balances and clear them
Credit utilization looks at your revolving credit and how you use it. You should aim to stay at 30% or lower of your available credit on all cards. Your credit utilization ratio could still show up as high if your credit card issuer is reporting the balance on your statement to the bureau at the end of the month even when you have fully cleared it. You can arrange to pay several times a month.
Try to clear the small nuisance balances on cards that you rarely use. It is better to use one card to make smaller payments than to use several cards. The number of credit cards on which you have balances weighs on your credit scores, so reducing the number of cards also helps.
3. Pay bills on time
It is easy to lose track of the small bills when you are saving for a major purchase. However, late payments even on small bills negatively on your credit score. Paying bills on time regularly (weekly or monthly) reflects shows reliability.
Self-reporting is a tactic that can add to positive scoring. This includes bills that are not normally tracked by credit bureaus, for example, internet billing or your library subscriptions. The providers of these services do not usually report to credit bureaus, but an unpaid bill will eventually show up on your credit report when they contact a collection agency to recover.
4. Shop for different types of credit in a short span of time
The frequencies of loan inquiries affect your credit scores because it means that you are looking to use more credit. Applications for credit will show up on your credit report for up to a year. Rejected applications further weigh down your credit scores.
But changes in scoring have made allowances to shop for multiple credits even when you need only one type of loan, without negative scoring if these applications are made in a short span of time. FICO scoring will ignore applications that are done 30 days before the scoring.
Diversifying your credit mix scores positively. A mixture of student loans, car loans, and mortgages which you are paying as required shows you are able to settle your bills.
Apply for one or two 0% interest credit cards and transfer them to your credit if you qualify. Qualifying for a zero-interest card is very good for your credit scores because these cards are only given to applicants who are deemed creditworthy.
5. Consolidate your debt
Debt consolidation enables you to track your balances better and gives you room to restructure your total debt for easier repayment terms. Making on-time payments improves your test scores quickly.
It is important to make a plan on how to improve your credit score if you are trying to take on a big financial undertaking. A high credit score enables you to take on a bigger car loan, mortgage, or even small business loan, making your life significantly easier.
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what is a good credit rating?
A credit rating is a number that represents your creditworthiness based on your history with debt and repayment. It is a measure of how likely you are to be able to repay loans and other obligations when they come due.
In the United States, the three major credit bureaus - Equifax, Experian, and TransUnion - collect data about individuals’ credit histories when they apply for loans or other forms of credit.
How good is my credit score?
No one likes to think about their credit score, but it's something that everyone should be aware of. Your credit score is a measure of how responsible you are with money and can affect your ability to get a loan, a mortgage, or even a job.
Improve Your FICO® Score Instantly
Ready to start improving your low credit score within two months?
Resources:
Top Simple tips to out from debt
Paying your credit card early improves your credit score
What is the highest credit score possible and how to achieve it?
Top Factors for Credit Score Calculate
Credit Repair Ease: How to Improve your credit score
What is the highest credit score possible and how to achieve it?
