Confused about credit? Wondering if your score really matters? You’ve got questions, ScoreShuttle has the answers in this easy guide to help you better understand your 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, buy a home, or get a new credit card, your credit will be an essential part of the qualifying process.
How is My Credit Score Determined?
Now that you know what credit is, the next step to understanding your credit is to take a look at the science behind determining your score. As you use credit, the various creditors gather information about your financial activity and report it to the three credit bureaus: Experian, TransUnion, and Equifax. There are a variety of scoring models and proprietary formulas used to come up with a credit score. Two of the most popular models are FICO and VantageScore. But regardless of the scoring model, the five factors below will likely play a role.
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, here is a look at the model Experian uses.
- Very Poor: 300 – 579
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Exceptional: 800 – 850
Why Does My Credit Score Matter?
To put it simply, the higher your score, the more big-ticket items you may qualify for. This is because lenders generally associate good credit with fiscal responsibility. Therefore, having good to exceptional credit means you will be more likely to get approved for items like a car or mortgage. In addition to approval, your credit will also be a major deciding factor on the deposit amount, interest rate, and loan terms you could be offered.
By the same token, your credit will also help determine how much you may spend on credit-based items. Broadly put, poor credit could cost you hundreds to thousands of dollars in added fees and costly interest over time. In contrast, exceptional credit can do the exact opposite – which could add up to significant savings over time.
Can I Control My Credit?
Yes! The first step in taking control of your credit is knowing where you stand. By checking your $0 credit score, you can get a gauge of your current credit status. Additionally, it’s wise to review your report regularly and practice good credit health at all times. This includes monitoring your report for accuracy and being responsible with your financial activity.
How do I Achieve Good Credit?
There are many ways to achieve good credit and each person’s credit journey is unique. Generally speaking, showing a responsible history of borrowing and paying back funds, such as a loan or credit card, is a great place to start. Here are some other financial staples that can help you maintain good credit health.
- Always pay your bills on time. As shown in the graph above, payment activity makes up the largest chunk of your credit score. By paying your bills on time, you can positively contribute to your credit profile.
- Keep your credit utilization ratio at or under 30%. In a nutshell, a low utilization ratio means you quickly resolve debt and do not carry an ‘owed balance’ over 30% of your credit limit. To help you achieve a low utilization ratio, ideally below 30%, only purchase items you can confidently afford to pay off each month and avoid maxing out your credit cards.
- Dispute report errors. If left unchecked, report errors can potentially cause a credit score drop. Item such as an inaccuracy, fraud, or information over the statute of limitations could damage your credit. The fastest way to potentially remove a report error is to dispute it online. If you suspect an error on one, two, or all three of your credit reports, you can use ScoreShuttle to file a dispute in just a few clicks.
Is 3-Bureau Credit Management Really Necessary?
In short, yes. Properly managing your credit with Experian, TransUnion, and Equifax will give you the best shot at credit approval. Here’s why. Creditors can choose if and where they want to report your payment activity. Because of this, your credit score can fluctuate from one bureau to the next. And like it or not, lenders have a choice when it comes to which credit bureau’s data they use when determining your creditworthiness. This means that even if you are happy with your credit score at one bureau – it may not be consistent across the board. If your lender uses data from a bureau you are not managing, it could change the outcome of your deal. With this in mind, is wise to keep tabs on your credit with all three. To access and manage your 3-bureau credit reports and scores now, sign up for ScoreShuttle!
The basics above are a great starting point to help you better understand your credit. But credit is complex and there are a variety of scenarios that can positively or negatively contribute to your creditworthiness. For best credit results, monitor your 3-bureau reports regularly, dispute errors, and strive to maintain the credit score you want.
Disclaimer: The content above is general in nature and is not a comprehensive list of the many factors that could contribute to your credit. This information is not meant to give credit advice or guidance on credit improvement. Always be sure to do your own research on which credit strategies are right for you.
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