Mar17
What’s All This Talk About Credit Scores?
You have probably seen and heard tons of advertisements advising you to check your credit report and credit score. With so much talk, it’s hard to believe anyone could have missed it, but has anyone really been listening? Do you know what your credit score is? Not just the number itself, but what that number means, why it’s so important and what that score potentially means for you?
Your credit score, or FICO score, is not just some meaningless number. It is a number, based on your social security number and financial history data, that is calculated by the three major credit reporting agencies. While each agency might have slightly different information and a slightly different calculation of your credit score, the numbers should still be similar enough to give a basic idea of just how credit worthy you are.
What Does My Credit Score Mean?
These scores are based on things the length of time that accounts have been opened and tracked. These accounts include revolving accounts (such as credit cards), installments, mortgages, bank accounts, debts owed, etc. If you have any kind of account with a company, typically, your activity will be reported to and tracked by the credit bureaus, regardless of whether your payment history is good, bad or in-between.
Credit scores typically range from a low of 340 to a high of 850. Few people achieve the 850 rating, as many things affect your overall credit rating, even if you do not have bad credit. An excellent score is 700 or higher. 600-699 is considered a satisfactory rating, even with the minor blemishes on your credit report. Any score below 500 is considered a low score and can make obtaining any kind of credit very difficult. Anyone with a score this low should think about taking a close look at their credit report and working hard to raise that number.
How Does My Credit Score Affect Me?
A high credit score is a major benefit. It will bring you the best offers for financing and lower interest rates for products such as loans, especially mortgages. A satisfactory score may not get you the best options, but since about 30% of people fall within the 600-699 FICO score range, most financial institutions want to work with them despite any flaws that appear on their credit reports. Maybe this is because even with the minor speed bumps, which are just part of life, people in this range have proven their want and will to keep their debts to a minimum and their financial reputation intact. A credit score of 500 or less will often leave you paying more in interest and fees, and that’s if and when you can get the credit. While credit is sometimes extended on a limited basis to people with very low credit scores, more often than not, credit is not offered at all. It’s nothing personal. While some people with a low credit score might be guilty of failing to pay there debts, others simply have little credit history to speak of. Not being given the credit because of a low score is simply because a person either seems high-risk or there just isn’t enough credit information to make lending or extending credit a plausible option. That’s why it is important for those with scores of 500 and below to work to increase their number.
Is There a Solution to My Low Credit Score?
Of course there’s a solution! Speaking with a credit counselor could help you to understand the fine points of credit and financial management and can help you to make a plan for improving your credit. Paying off debts you owe will also help. Other options include credit cards that offer a small spending limit and allow you to build up your credit as you use it and pay on the balance. The important thing is to look into your options and raise you credit score from low to at least a satisfactory level if you want the benefit of more credit and financing options.
