Understanding your credit score and regularly checking it is good practice as your credit score plays a key role in your financial opportunities.
Keeping tabs on your credit score better prepares you to handle your finances and make educated financial decisions. Learn the basics of a credit score in order to set yourself up for financial success.
What is a credit score?
Credit score is a commonly used term in the financial industry and is expressed in the form of a number. This number helps lenders assess how well you’ve controlled your financial obligations and payed your bills on time. Another way to think of your credit score is your level of financial trustworthiness. Your unique credit score is determined by many factors such as your payment history, number of open accounts, amounts owed, length of credit history, and types of credit. Credit scores typically fall between 300 to 850, and the higher the score the better. This number can fluctuate monthly based on your financial actions.
While each financial institution has their own definitions of credit score ranges, the chart below shows the average classifications of credit scores.
When is my credit score used?
Lenders assess credit scores as a predictor that an individual will repay loans on time. So, they use your credit score to determine whether to lend you money and how much they should charge you for borrowing money. Your credit score is used when qualifying for a loan, getting approved for a credit card, determining interest rates and credit limits, and establishing the initial deposit required for things as such smartphones, cable service or utilities, or your ability to rent an apartment. Your credit score could also affect your auto insurance rates or even your chances of getting a new job.
How do I check my credit score?
Hopefully you have a better understanding of what a credit score is and how it’s used. It’s very smart to check your credit score frequently, plus it’s free and easy. Each of the major credit bureaus (Experian, Equifax, and TransUnion) will provide you with a free credit report every year if you request it.
Check your credit score on the official Annual Credit Report Website.
Bottom line: your credit score can either save or cost you money when it comes to your financial well-being. A high credit score can lead to favorable interest rates – meaning you pay less to borrow money. It’s your responsibility to manage your credit wisely and follow best practices in order to keep your credit strong.
Now that you know the basics of a credit score, learn how to improve your credit score.