Credit Scores
It’s a three-digit number and it could be sabotaging your future. Learn how to keep your credit score in good standing and redeem yourself if your credit has already gone awry.
Your credit score, sometimes called a FICO score, is a three-digit number based on your bill-paying history, debt profile and financial history that lenders review in order to better predict your credit behaviour, and whether you will pay your loan on time.
While you may say it is just a silly number, this score can have a huge impact on your ability to save money and to qualify for low-interest loans. In fact, without good credit scores simply renting an apartment could pose difficulties, as your application could very well be turned down by the landlord who thinks you are too much of a risk.
Credit scores are determined by one of the three major credit bureaus in the U.S., whom rely on information submitted to them from the various companies that gave you credit or loans in the past.
Your credit score is calculated according to many factors including previous payment behaviour, how much you owe, how long you have held outstanding credit, the type of credit you use, and how much credit is available to you.
Credit scores range anywhere from 300 to 800. A score above 620 is ideal, with the American median score being 720. Consumers with scores below 600 are usually charged relatively high loan rates, and if your credit score is really bad, you may be not be able to borrow at all.
It is important for consumers to know their credit score in order to ensure its accuracy and work towards improving the number. You can access this information by obtaining a copy of your credit report. This report is free, once yearly, and is information collected by all three credit bureaus: Equifax, Experian or TransUnion.
If you do have a poor credit score, don't despair. There are ways to redeem yourself by improving how you handle credit. You can do this by paying your bills on time, keeping balances low on credit cards and applying for new credit accounts only when you need them. This will all have your credit slowly recuperating over time.
If you are overwhelmed with debt and just can't get a handle on your finances, individuals may want to think about debt consolidation as a means of restoring your credit. While the simple act of consolidation will not improve your credit score (the credit bureau just looks at it as shifting your debt around), it will give you the opportunity to get control over your finances and pay your bills on time, which will improve your score.