Credit scores can have a profound impact on our finances. For example, a good credit score could mean better terms on your loan. It could also be the difference between being approved or denied for a loan in the first place.
What Is a Credit Score?
Let’s start by first defining what a credit score is. Essentially, a credit score is a number ranging from 300 to 850 to help lenders determine the likelihood that you’ll pay your loan back to them. Lenders will consider your score when applying for a credit card, mortgage, auto loan, or even by a landlord when you are looking to rent a property.
What Factors Impact Your Credit Score?
Many factors can impact your credit score. Some more than others, but each aspect is just a piece of the puzzle when lenders look at the risk level associated with lending you their money. Some common factors when determining your credit are:
How Do I Get My Credit Scores?
Getting your credit score is a relatively straightforward process. You can get a full credit report from each of the three credit bureaus once per year from AnnualCreditReports.com. Reviewing your credit report each year is an excellent way to find discrepancies or wrong information that may be hurting your credit score.
Why Having a Good Credit Score Is Important
Having a good credit score can be beneficial for several reasons. Most of these reasons revolve around your ability to secure getting new loans. Having a higher credit score will make it easier, in general, to get a new loan. A higher credit score can also make the terms of any new loan better for you.
A FICO score is typically a score in the range of 300 - 850. FICO (Fair Isaac Corp.) introduced its scoring method in 1989 and used data from all three major credit bureaus. As a result, there are several ratings credit scores can fall into in the FICO rating system: poor, fair, good, very good, and exceptional.