Improve your credit score – a guide on how to get good credit scores
As much as many people think that they can see their credit scores by checking their credit reports from credit agencies, that is never the case. In fact, you will not get credit scores from the three major bureaus’ credit reports. Even before finding out where credit scores can be found, here are some of the things you need to know about your scores.
First, it is important to know that an individual does not have only one credit score. The main aim of credit scores is to represent the risk that lenders put themselves in when providing a loan. Most lenders consider the borrower’s credit score before offering credit. Credit score figures are calculated using the credit report information.
Secondly, credit score providers including FICO and the three major credit bureaus use different credit score models when calculating scores. The three major bureaus-Experian, Equifax and TransUnion also offer varied reports since lenders may not report the borrower’s credit information to all the bureaus. Credit reporting agencies may also use additional information to come up with consumer reports.
What does credit score mean?
Credit scores are digits that lenders use to determine the likelihood of the borrower to repay a loan on time. Credit score is also referred to as risk scores since it is used by lenders to assess the risk of the borrower not being able to repay the loan as per the agreement. On the other hand, credit reports are information that lenders send to credit bureaus regarding your credit behavior. Credit reports are regularly updated depending on your ability to repay the loan. The report is usually based on your credit history, credit inquiries, public records and collection.
Why is your credit score important?
Credit scores consist of three letters calculated using the following factors;
- Payment history
- Length of your credit history
- Amount owed
- New credit
- Credit mix
If you request for credit and miss some payments, your credit score will reduce. Applying for different loans within a short period of time will also affect your score. While you may be required to pay for your credit score, there are several sites where you can access both your credit score and credit report for free.
Most people believe that credit score is only important when it comes to applying for credit. However, the benefits go beyond loan applications. Credit scores also have an impact on insurance rates. Insurance companies come up with their own “insurance scores” which are calculated based on your credit score and other factors. If you have a poor credit score, you may have to pay more money on additional premiums. But if your credit score is attractive, you may qualify for a discount.
Additionally, employees can also check your credit score. The reason behind this is to ensure that they hire responsible individuals. Since you are the one in control of your credit scores, it is important to ensure that they maintain a good range.
How to get your credit score
Credit health plays a vital role as far as your financial future is concerned. With an 800+ credit score, you will qualify for higher loan amounts with affordable interest rates. In the long run, you will be able to save hundreds of dollars when repaying a loan. However, having a poor credit score may hinder you from getting loans to cater for daily expenses, repair your car or purchase items. Here are some of the ways to get credit score.
- Check your loan statement, financial institution or credit card
Currently, credit card companies, banks and other loan companies have started issuing credit score to their customers. The credit score may be in the customer’s statement. You can also log into your account to access the statement online.
- Direct purchase of credit score
You can either purchase your credit score directly from FICO or the three major credit bureaus.
- Use free credit check site or a credit score service
There are also sites that provide users with free credit scores. But some sites that may require consumers to pay a monthly subscription fee.
- The politics of friendship
Barclays and Discovery were the first banks that started providing cardholders with free credit score. More providers have since then followed suit. There are also other banks like Wells Fargo that offers credit score to customers at a specific period every year.
Apart from knowing how to get credit score, it is equally important to check your credit report on a regular basis. This is to ensure that the report is complete and accurate. A copy of your credit report can be obtained from credit reporting agencies at least once a year. If you come across some information that you think is either incomplete or inaccurate, confirm with your lender as soon as possible. You also have the option of filing a dispute with the credit bureau that issued the report.
What next after getting your credit score?
If you regularly check your credit score, you will get an idea where you stand when it comes to your credit rating. Credit scores are important since they are used by lenders to know the loan limit that you are eligible for a mortgage, auto loan or credit cards and whether you qualify for a low-interest loan. It is actually among the important figures an individual should have after they are done with schooling. You also should bear in mind that the numbers you see may not be used by all lenders. You can only get your actual FICO score, which is used by more than 90% of lenders, through a credit card.
Since your credit score is calculated using the credit report, it is always important to regularly check for errors. You should also check if there is any credit account opened under your name which you did not apply for. After credit monitoring for one month, you may notice some fluctuations. FICO credit scores of more than 80% of people can change by up to 20 points from the previous month, which normally happens when you apply for credit or make major purchases. But this should not be the reason to worry, provided it is within the top range.
What credit score is good, and what is a bad credit score?
Even before getting to know what credit score is healthy for you, it is important to note that having a specific score isn’t a guarantee that you will qualify for a loan or receive the lowest rates. But if you maintain a good credit score, you will increase your chances of receiving the best rates from lenders. The following are FICO credit score ranges from 300 to 850.
- 781-850 excellent
- 720-780 very good
- 658-910 good
- 601-657 fair
- 300-600 unfavorable
A credit score of between 781 and 850 is considered as a perfect credit score. This means that you can qualify for larger loan amounts with affordable rates of interest. With a credit score of less than 601, you may not qualify for credit and if you do, lenders will impose a high interest on the loan. But you can still work on your credit and qualify for better rates by:
- Optimizing your credit utilization ratio
- Making on-time payments
- Paying off your existing debts
- Avoid taking new debts
With an excellent credit score, you will be able to achieve your financial goals by qualifying for low-interest loans. To improve your credit rating, you first have to know your credit score, understand your credit report and know the actions you will take to improve your credit health. You can review your annual credit report and regularly check your credit score to help you take control of your finances.