May 13, 2024

What is Your Credit Score and Why Does It Matter?

Your credit score is a number that represents your creditworthiness. It is based on your credit history, which includes information about how you have handled debt in the past. Lenders use your credit score to decide whether to give you a loan and what interest rate they will charge you. A high credit score can help you qualify for loans with lower interest rates, which can save you money in the long run. On the other hand, a low credit score can make it difficult to qualify for loans or cause you to pay higher interest rates.

How is your credit score calculated?

The five main factors that are used to calculate your credit score are:

• Payment history: This is the most important factor in your credit score. It shows whether you have made your debt payments on time.
• Credit utilization: This is the amount of credit you are using compared to your available credit limit. It is generally best to keep your credit utilization below 30%.
• Length of credit history: The longer your credit history, the better your score will be.
• Types of credit: Having a mix of different types of credit, such as credit cards, loans, and mortgages, can help improve your score.
• New credit inquiries: Each time you apply for new credit, an inquiry is made on your credit report. Too many inquiries in a short period of time can negatively impact your score.

What is a good credit score?

A good credit score varies depending on the lender and the type of loan. However, in general, a score of 670 or above is considered good, while a score of 780 or above is excellent.

How can you improve your credit score?

There are several things you can do to improve your credit score, including:

• Make your payments on time: This is the most important thing you can do to improve your credit score.
• Keep your credit utilization low: Pay more than the minimum amount due on your credit cards each month and try not to open new credit cards that you don't need.
• Don't close old accounts: Your credit history is longer the longer you have kept your credit accounts open.
• Check your credit report regularly and dispute any errors: You can get a free copy of your credit report annually from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Review your credit report for errors and dispute any errors you find.