Throughout your adult life, you’ll often hear people talk about how you need to have a good credit score. But what exactly does that mean, and what kind of a credit score range is required to qualify for great loans and rates? In this article, we’ll explain what a credit score is and what you can do to improve your score.
Your credit score, or more specifically your FICO Score, is a number between 300 and 850 that quantifies your creditworthiness. Lenders will use your score to make decisions about whether you’re a good candidate for a loan and what interest rate should be used. Simply put, the higher your credit score, the better rates and terms you may qualify for.
FICO is the company that calculates this score, and they do so by pulling data collected by the three major credit reporting bureaus: Equifax, Experian, and TransUnion. Every positive action you make like paying a bill on time or in full helps to improve your score. At the same time, negative actions like being late or missing a payment altogether will result in lowering your score.
According to Equifax, FICO Scores can be grouped together into one of five categories:
Generally speaking, many people with Excellent and Very Good credit will have no problem qualifying for many loans and getting the best rates. People with Good, Fair, and Poor credit can still qualify for loans but may not get the best rate available.
FICO Scores use five main pieces of criteria to calculate credit scores:
The great thing about your FICO Score is that you’re never stuck with a low one. You can always improve your number by using the following tips:
The better your FICO Score is, the more likely you will be approved for a loan and offered a great interest rate. To get a great credit score, build a solid credit history by practicing good financial habits such as paying your bills on time, in full, and keeping your credit utilization low.