Ever wonder what goes into your credit score? Does your score really matter? You’ve got questions. ScoreShuttle has the answers in this easy breakdown of the basics behind credit. First, let’s start with the definition.
What is Credit?
Credit is a tool used by lenders, service providers, and a variety of financial institutions to determine whether or not you are a desirable candidate to loan money to – or provide services for. Whether you are looking to get approved for an auto loan or maybe even buy a house, your credit will be an essential part of the qualifying process.
How is my Credit Score Determined?
Next, let’s take a look at the science behind determining your score. As you take out credit, the various creditors gather information about your payment history and report it to the three main credit bureaus: Experian, TransUnion, and Equifax. The bureaus use various scoring models and proprietary formulas to come up with a score. As a result, your score may fluctuate from one bureau to the next. However, the following 5 factors will in fact play a role.
- Payment history – Do you pay your bills on time?
- Length of credit history – How many years of credit use are listed on your report?
- Credit mix – Are you successfully maintaining various types of credit?
- Amount owed – What is the total amount of debt you currently owe?
- New Credit – Are you responsible with the number of new credit lines you apply for?
What is a ‘Good’ Credit Score?
According to Experian, credit scores range anywhere from 300 to 850. To sum up which numbers are generally considered bad and good, below is a look at Experian’s model.
- Very Poor: 300 – 579
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Exceptional: 800 – 850
Why is my Credit Score Important?
To put it simply, the higher your score, the more big ticket items you may qualify for. Here’s why. Lenders generally associate good credit with fiscal responsibility. Therefore, having a high score is more likely to get you approved for items like a car or mortgage. It will also be a major deciding factor on the type of deal and favorable loan terms you could be offered.
Overall, a low score can cost you hundreds to even thousands of dollars in added fees, unnecessary security deposits, and costly interest. In contrast, a high credit score can do the exact opposite – which could add up to significant savings over time.
Is it Possible to Control My Credit Score?
YES! You can control your credit score. Successful payment activity and general fiscal responsibility are great first steps. However, there could be more pieces to your unique puzzle when it comes to building up your credit scores. To get your mission to a higher score started, click below to access your current credit report and score now!