Credit Scores – Understand What the Three-Digit Number Means
If you applied for loans or credit cards before, you may have the term “credit score” being thrown around. But, what exactly does this mean? Read on to find out.
What Is the Credit Score?
A credit score is a number between 300 and 850 that depicts an individual’s creditworthiness. The higher this number is, the more likely it is that you will get loans and credit cards easily at better rates. In comparison, if your credit score is low, you will need to pay a higher interest rate. Your credit score determines the credit risk that the lender will be taking on by approving your application for a credit card or loan.
How Do Credit Scores Work?
A credit score has a substantial impact on your financial life. For instance, an individual with a credit score of 640 can be considered a subprime borrower. While you may get a loan even if you are considered a subprime borrower, keep in mind that you will likely be charged a higher than average rate of interest.
How to Improve Your Credit Score
Review your credit report: The information on your credit report is what affects your credit score. So, every few months, check the details on your credit report and report inaccuracies.
Make payments on time: This has the biggest impact on your credit score. Start making your payments on time, and in a few months, your score will increase.
Repay debt: Have a lot of small outstanding payments on your credit cards? Pay them off to see an increase in your credit score. Repaying debt will lower your credit utilization ratio, which will increase your score.
Keep your credit card active: Yes, we know it can seem tempting to close your credit card if you aren’t using it. But unless you are worried about overspending, it’s a good idea to keep your credit card account open. Older accounts can contribute positively to your credit score, since the overall age of your credit accounts increases.
We hope these tips help boost your credit score in no time!