You’re finally earning cash, and you’re looking towards getting your first loan. The official searches for your name on their computer, and after a few seconds, they tell you that you’re not qualified because your credit score is too low. Your credit score is a number that represents how likely you are to pay your bills correctly and on time. Here are the factors that lead up to this number and how to improve it.
What is a Credit Score?
A variety of factors determines your credit score. These include the amount of debt you currently owe to any bank, your payment history, how long you’ve been paying your debt, how many credit accounts you have, and more. There are a variety of companies that generate credit scores; each uses different factors, metrics, and ranges. The most common one that lenders and banks base off of is Fair, Isaac and Company, better known as FICO. Their scoring system ranges from 300 (poor) to 850 (excellent).
Why Do I Need a Good Credit Score?
You mainly want your credit score to fall above 670. That is considered to be “good,” according to FICO’s standards. Anything below falls to the “fair” to “poor” rating. But why do you need a good credit score?
As mentioned earlier, it’s a measure of risk. Your credit score is affected by your payments. So, if you’ve been behind on your bills, you may get a low credit score. It signals to your chosen bank or lender that you have a history of paying late or not paying at all when it comes to your debts, discouraging them from approving the plan you want.
On the other hand, those with good credit scores enjoy other perks apart from approved plans. A lot of lenders and banks offer low-interest rates for clients with high credit scores.
Some plans don’t require a credit score. However, they are often reserved for veterans. For example, if you served in the military, you can get a VA loan, which doesn’t have a minimum credit score requirement.
How Can I Improve My Credit Score?
If you’re an ordinary office-going individual, you’ll need to improve your credit score if you want to get your credit card or loan. Here are ways to do it.
- Check Your Credit Score — You can check your FICO credit score for free on Discover. If you want to see your other scores, Equifax, TransUnion, and Experian are your best choice. However, some of them may require you to pay before you see your score. If you have a FICO score well above 670, you probably won’t have a problem with securing your loan. However, there’s always room for improvement!
- Review Your Credit History — Get on your computer or phone browser and access AnnualCreditReport.com. There, you’ll see transactions and accounts you’ve created, as recorded by Experian, TransUnion, and Equifax. Scan each record to see if there are any fraudulent activities or errors. Dispute them immediately with the reporting company and your bank. You don’t want these bad transactions to bring your score down.
- Negotiate With Your Creditors — If you’re running behind on payments, negotiate a more manageable plan with your creditor. This way, you can catch up on your bills faster. That also allows you to avoid late notices that negatively impact your credit score.
- Set Up a Payment Calendar — Don’t miss out on your essential bills by adding them to your phone calendar. Set their alarms to repeat every month. Make sure to separate each payment in different entries in your schedule as well to keep things organized.
- Allow Automatic Payments — If you don’t want notifications pestering you every month, set up automatic payments. That involves a creditor or utility provider automatically deducting cash from your debit account. Always make sure you have enough for every month. You don’t want to end up with a notification informing you of insufficient payment.
Your credit score is more than just a number. It’s an indicator of trust for a lot of lenders and banks. Apply these helpful suggestions, and you’ll see your credit score rise over time. A good credit score doesn’t just provide you with approved loans; it also teaches you to keep your finances in proper shape.