Credit scores are numbers that reflect one’s likelihood of paying back credit. Lenders, like banks and credit card companies, usually look at one’s credit file when they calculate their credit score, which will show the level of risk in lending to the specific borrower.
Why Credit Scores Matter
Having a good credit score is important because it improves the chances of getting a loan to buy an apartment, a car or get access to certain services such as medical care.
What is a good credit score?
For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750. Higher scores represent better credit decisions and can make creditors more confident that one will repay their future debts as agreed.
Factors That Affect a Credit Score
- Payment history for past loans and credit cards, including the number and severity of late payments
- Type, number and age of credit accounts
- Total debt
- Public records such as bankruptcy
- Number of new credit accounts recently opened
- Number of inquiries for one’s credit report
How to Improve Credit Scores
- Pay all bills on time.
- Get Credit for Making Utility and Cell Phone Payments on Time
- Pay off debt so as to avoid defaulting on some of them.
- Keep balances low on credit cards
- Only open new credit accounts when needed so as to avoid creating too many hard inquiries on your credit report and reduce the temptation to overspend and accumulate debt.