NEW YORK – Your credit score is one of the most important financial pieces of information about you.
It’s used by lenders to determine whether to grant 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 Credit Scores Work
Your credit score is a number that lenders use to assess your creditworthiness. It is important to have a good credit score in order to 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 get better terms.
Good credit score?
A good credit score is usually between 650 and 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 is, you can check it for free on credit monitoring websites like Credit Karma and Credit Sesame.
What affects credit scores?
Here are the factors that affect 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 are used to making payments on time. If you’ve missed payments or made late payments in the past, it will negatively impact your credit score.
Use of credit: Credit usage 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 $1,000 and you have a balance of $500, your credit utilization is 50%. It is important to keep your credit usage low to maintain a good credit score.
Credit age: Credit age is another factor that affects your credit score. The longer you’ve been using credit, the better it is for your credit score. This is because lenders view people with long credit histories as less risky borrowers.
Types of credit: This is a mixture of different types of credit accounts, such as credit cards, mortgages, etc. Having a mix shows you can manage different types of credit responsibly.
New credit: Opening new credit accounts can temporarily lower your score, as it is considered riskier by lenders. But if you manage your new credit well, it will eventually help improve your score.
Improving your credit score is key to qualifying for soft loans. 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.