What to Know about Credit Scores
7/6/2022
3 minute read
What to know about credit scores?
A credit score is a snapshot of an individual’s financial situation that provides information about their credit history. Lenders use these scores to make credit decisions because they can help indicate how likely it is that somebody will repay borrowed funds.
Credit scores run between 300 and 850 points. The FICO model is the most popular way to calculate credit scores, which is why a credit score is often referred to as a FICO score. VantageScore is another major credit-scoring model. FICO and VantageScore share many scoring criteria, but they apply their own formulas to data from your credit report to calculate your credit score.
This credit-report data usually comes from the three major credit bureaus: Experian, Equifax, and TransUnion (though there are also smaller bureaus). Data can vary slightly between each bureau, so a credit score may also differ depending on which bureau supplied the information.
Ranges
What is an ideal credit score? The following is a basic breakdown of credit-score categories:
• Poor (less than 580)
• Fair (580 to 669)
• Good (670 to 739)
• Very Good (740 to 799)
• Exceptional (800 to 850)
Why credit scores matter
Your credit score can affect your approval odds on applications for credit/loans, housing, and more. The higher your score, the more reliable you look to lenders. If your score is below 600, you’ll likely contend with higher interest rates and increased deposits; you may also have trouble getting approved for credit. However, those with scores of 690 and above have access to better rates and deals.
The good news: credit scores alone don’t make or break your chances of getting credit. Lenders want to know you can manage your debt and make payments on time. A credit score is just a piece of that larger picture.
No credit score or “credit invisible”
Some people don’t have a credit history or a score. Reasons for this are: never having been listed on a credit account, recently being added to an account, or not having used credit for at least six months.
This means lenders don’t have much information to indicate whether or not you’d be a responsible borrower. So that makes it harder for you to apply for loans, credit cards, an apartment, a car, etc. Fortunately, those beginning their credit journeys can establish and build their credit histories and scores in a number of ways, such as taking out a personal loan and making on-time payments that are reported to the credit bureaus.
What affects credit score?
It’s important to be aware of the factors that affect your credit score. The percentages below are estimates, but they show what’s important.
• Payment history (35%)
• Debt amount compared to credit limits (30%)
• Age accounts/credit (15%)
• Applications for credit (10%)
• Types of credit you use (10%)
Credit scores take time to improve. Besides paying your bills on time, try to keep your debt balances low and consider debt consolidation if you are dealing with multiple high-interest accounts.
Checking credit reports
It’s essential to monitor your credit reports regularly to see your progress and check for errors. Experian, Equifax, and TransUnion provide you with a free copy of your credit report upon request once a year. Some banks also offer credit monitoring services, and you can sign up for a free account with Credit Karma to regularly check your score with two of the three major bureaus.
Need a loan to cover an expense or to consolidate debt? Making regular payments may help you boost your credit score. Contact a Lendmark loan specialist today, and we can help you find the best loan for your situation.
