What Is a Credit Score?
A credit score is a three-digit number that estimates how likely you are to repay borrowed money and pay bills or depicts the consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in an accurate time.
- A credit score plays a key role in a lender’s decision to offer credit.
- The FICO scoring system is used by many financial institutions.
- Factors considered in credit scoring include repayment history, types of loans, length of credit history, and an individual’s total debt.
- One metric used in calculating a credit score is credit utilization or the percentage of available credit currently being used.
- It is not always advisable to close a credit account that is not being used since doing so can lower a person’s credit score.
Credit Score Ranges:
Creditors set their own standards for what scores they’ll accept, but these are general guidelines you’ll be able to use to:
- A score of 720 or higher is generally considered excellent credit.
- A score between 690 and 719 is considered good credit.
- Scores between 630 and 689 are fair credit.
- And scores of 629 or below are poor credit.
In addition to your credit score, factors like your income and other debts may play a role in creditors’ decisions about whether to approve your application.
Credit Availability: the amount by which the Maximum Credit Amount at such time exceeds the Credit Obligations at such time.
Why Scores Differ? Your score differs based on the information provided to each bureau. Information provided to the credit bureaus: The credit bureaus may not receive all of the same information about your credit accounts. Surprisingly, lenders aren’t required to report to all or any of the three bureaus.
What factors affect your credit score?
More often, these are the two main factors to consider that affects client credit scores.
- Paying bills on time. A misstep here can be costly, and a late payment that’s 30 days or more past the due date stays on your credit history for years.
- How much you owe. Credit utilization, or how much of your credit limits you are using, is weighted almost as heavily as paying on time. It’s good to use less than 30% of your credit limits — lower is better. You can take several steps to lower your credit utilization. Scores respond fairly quickly to this factor.
The better the score you have, it helps the way to unlock the things you want- most likely by having a great travel credit card, getting a new house or car is easy, better interest rates, lower insurance premium and many more. Each one of us has a different scores and it varies on how to handle the risk of having our credit scores good.