What’s a credit score and why is it so important? If you’re wondering these things, you’ve come to the right place. Your credit score is an important indicator of financial health. It can play a role in whether or not you are approved for things like loans, credit cards and even apartments. It can also help determine the terms and interest rates of new loans and credit cards.
Simply said, a solid credit score can help open doors to bigger and better financial options and make providing for you and your family a little easier. If you’re not happy with your current credit score, or don’t have one at all, don’t fret. There are several ways to raise your score, or begin to build one from scratch.
What is a Credit Score?
First thing’s first. A credit score is a number that reflects how likely creditors think you are to pay back a
loan. A credit score incorporates five things:
- Payment History – Do you pay your loans on time?
- What You Owe – What’s your current financial debt situation?
- Length of Credit History – How many years or months have you held your credit accounts?
- Credit Mix – Do you have different types of credit? Do you have a credit card, an auto loan, a student loan, a personal installment loan, etc.?
- New Credit – Have you opened multiple lines of credit recently? This can be considered a red flag and could cause your score to decrease.
A credit score usually ranges from 300-850. 300-579 is considered poor, 580-669 fair, 670-739 good, 740-799 very good and 800-850 is excellent.
How to Improve Existing Credit
If your credit score isn’t as high as you’d like it to be, there are some relatively easy things you can do to help bring it up. The most important thing? Make payments on time.
If you have a credit card, make steady payments. Preferably more than the monthly minimum and most definitely on time. Even just one late credit card payment can bring down your score (and cost you in late fees).
Needless to say, credit card interest can add up fast, so the quicker you can pay down your balance the better. Using less of your credit limit and making timely payments are two major ways to improve your credit score. Many credit card companies offer credit score updates, so make sure to check that out. You might be surprised how quickly your score can improve. A word of warning though – too many “hard checks” of your credit can actually decrease you credit score. When you sign up for a credit monitoring service, make sure they don’t do any “hard checks” to get your score.
Aside from credit cards, if you have other loans like student loans, auto loans or mortgages, make sure to make those payments on time. All of these count toward your credit score.
How to Establish New Credit
If you don’t have credit history at this moment, congratulations on taking the first step. It’s never too late to start building your credit score, just remember that it can take time. It takes about a month to establish new credit, and then months and even years after that to bring that score up.
One way to build credit is with responsible credit card use. Find out what kind of cards your bank has to offer. If you’re finding it hard to qualify for one of their credit cards, consider applying for a store credit card. In general, it’s easier to qualify for a store credit card because there are limits to how and where you can use it. Both bank and store cards are a good way to start building credit. Just make sure you pay the balance of each card on time every month.
Another thing that can help build credit is a personal loan from World Finance. We offer competitive rates and can help you start building your loan history. You might use a loan to buy a new laptop for school or to do some valuable home renovations. Or, if your car has been begging for a tune up or other repairs, we can offer you a loan to get it back on the road. We report your payments to credit bureaus, so making an on-time loan repayments can help raise your score.
Our last bit of advice? Slow and steady wins the race. Building credit is a lifelong process, and there are no quick fixes. Be careful of people or places that tell you that you can improve your score overnight. Making steady, responsible decisions with your money is the best way to build credit, and get back to the good.
You can find more details about credit scores in our What’s In a Credit Score blog.