A Newbie’s Guide to a Credit Score

What is a Credit Score?

A credit score is a value that measures your reliability as a borrower of money. It ranges from 0-1200; the credit score is a rubric that banks and other lending institutions use to decide your worth regarding receiving a loan and credit. 

The credit score impacts the final decision of lending institutions such as MoneyCat on whether you or not you will receive a loan from them. Moreover, your credit score affects the deals you get from financial institutions. For these reasons, it is important to keep your credit score healthy. 

How Do Credit Scores Work? 

Credit scores influence the financial deals you are offered by lending institutions. For example, if you have a credit score of 640, you will be noted as a substandard borrower. 

As a result, banks will offer you higher interest rates and shorter repayment terms and may even require you to have a co-signer due to how low your credit score is. In contrast, you may enjoy better credit and easier loan applications if you have a higher credit score. 

How Is the Credit Score Computed? 

There are three major credit companies that update, track and store the credit history of their consumers. These are located in the United States. These three major credit bureaus are namely, Experian, Equifax, and Transunion. These three credit bureaus may utilize different standards in calculating one’s credit score. However, the primary elements of a credit score include the following:

  • Payment History
  • Total amount owed
  • Length of credit history
  • Types of credit
  • New credit 

What is the Lowest Credit Score? 

The lowest current credit score that is possible to attain is 300. A credit score of 300 signifies that you are a substandard borrower. Financial institutions may not give you any offers. If other lending bureaus eventually do, then you may receive tighter conditions. It can also be weighed as a sign of credit difficulties and financial irresponsibility. 

What is the Highest Credit Score? 

850 is the highest credit score that is attainable. With a credit score of 850, banks will offer you better financing options. You can also enjoy better credit for shopping, vacation, and other novel experiences. 

Your good credit score can also affect your job prospects. Human resources may look into your other records in background checks on you. If they see you as a model lender, you have a stronger chance of getting the job. In addition, to hiring managers, financially irresponsible behavior can be considered a red flag. 

What is the Range for Credit Scores? 

The values of credit scores range from 300 to 850. Down below is an explanation of the range for credit scores. 

  • 300-579 – Poor
  • 580-669 – Fair
  • 670-739 – Good
  • 749-799 – Very good
  • 800-850 – Excellent

Keep in mind that other credit bureaus use several other scoring models. In addition, others may use other data to compute credit scores. 

How can I Increase my Credit Score?

You can put more effort into the improvement of your credit score by following these few tips: 

  • Paying bills well – How well you pay your bills is a big factor in keeping your credit score healthy. If you pay early and consistently, there is a higher chance you will get a higher credit score. For those who struggle with their bill payments, you can automate it with your digital bank account. 
  • Disputing reports – No matter how small a stain may be, it can affect your record. You can access your credit report online. From there, you will check if there are any misrecorded payments. You can also dispute any errors and have outdated transactions deleted.   
  • Using a secured credit card – A secured credit card contains a cash deposit you have backed. The deposit can be used as collateral if you cannot make any payments. 

Conclusion

 A great score can give you plenty of perks. Meanwhile, a lower score indicates that you have much to learn and work on regarding your financial habits. While your credit score can elevate or break your quality of life, remember that it does not define you. If you need to improve, go for it, as there are plenty of benefits to achieving a better credit score.