What is a Credit Score? We're Glad You Asked

The term “credit score” is deceptively simple. In those two little words, you’ll find a ton of meaning. Essentially, your credit score tells the story of your credit history. From paying bills on time to credit limits and everything in between. The good news? It’s easier to raise it than you might think, even if you don’t have one at all. Here’s what you need to know to get back to good spending.

What’s a credit score? The simple breakdown.

Simply put, your credit score tells lenders how likely you are to repay them. It’s basically your financial trustworthiness boiled down into one number. Your score changes about once a month and is relayed to your creditors by three different organizations (called Credit Bureaus): TransUnion, Equifax and Experian. Your score will range between 300-850 – 850 being the highest, best score possible, 300 being the lowest, least awesome score (don’t worry, you can raise it).

What those numbers mean:

  • No Credit Score = “No” Credit (hey it’s ok – gotta start somewhere!)
  • Under 630 = “Bad” Credit (Nowhere to go but up, right?)
  • 630-689 = “Fair” Credit (You can do it!)
  • 690-719 = “Good” Credit (You’re on a roll)
  • Over 720 = “Excellent” Credit (You genius, you)

Why does your credit score matter?

First and foremost, it’s crucial for taking out loans and for getting credit cards. If lenders see that your credit score is high, they may be willing to offer you a loan at a lower interest rate (meaning more money in your pocket — yay). Because your number can indicate you as a less risky borrower, lenders are ok with making a little less money off the loan. If your credit score is lower, lenders might view you as a higher risk and will ask for a higher interest rate to keep their bases covered.

So what exactly affects your credit score?

Type of Credit
Different loans have different requirements. For example, a large home loan affects your score way more than a personal installment loan of $500. But while having diverse loans can help your credit score, it doesn’t change your score as much as other factors.

Age of Credit
Lenders are much more likely to lend money to people who show that they’re able to make payments over a long period of time. Having a credit card and long-term loans definitely help your case.

TIP: When you open a new bank account, you might feel like you should close your old one. BUT, before you do, consider that closing that account means reducing the age of your credit (thus reducing your credit score).

Incurred Debt & Credit Limit
How much debt do you have? How much of your credit limit are you using? Both of these questions will play into your credit score and will help creditors determine how comfortable they are with lending you more.

How high is your current credit limit (across all accounts) and how much of that have you already “spent?” Lenders want to know how much of your credit limit you still have available. If you’re getting close to hitting it, they’re less likely to give you favorable rates or more money.

Payment History
Paying your bills on time is imperative. This shows lenders that you’re reliable and they don’t have to worry about getting their money back.

TIP: Prioritize paying on time. Even if you’re only able to pay the minimum amount, it’s the easiest way to help bump up that score. If you can, set up automatic payments so you never forget.

What are “Hard Inquiries?”

To a credit bureau, this means that you took significant steps to get a loan. If you tried multiple times to get a loan with no success, it appears as a red flag to lenders for potential fraud.

TIP: Ask lenders if they intend to do a “hard pull” on your credit history. If your credit profile shows too many of these “hard pulls,” it may lower your credit score.

Our team of experts is always here to help answer any questions you may have about credit, personal installment loans or other financial topics. And if you need a loan, we’ll work with you to find the perfect one that fits your needs, so you can get back to the good. Ready to take the next step? Find your local branch and start your application.

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