All our lives we are evaluated and assessed by numbers and values. From primary school to adulthood we do our best and get branded by a value. These values often have a substantial impact on our futures and that can be really intimidating. Credit scores are the continuation of grades in our adult life and sometimes they can be confusing. So here are some common questions and answers concerning credit scoring.
Your credit score is a representation of your ability to pay your bills. It has nothing to do with income or history of employment. Anyone who is going to give you something and trusts that you will pay them later like car dealerships or banks look at your credit score to determine whether or not you are someone who can make payments.
What’s a good score?
There are a variety of different credit scores but they all follow a similar numerical range. With a few exceptions, scores typically range from a 300, which is incredibly bad, to a 850, which is astronomically good. What it is a realistic good score? Well, 680 is sort of the bare minimum score, think of it as a low B. 720 and higher is typically considered a good score and everything above 750 is brilliant.
Which score is the most important?
There are many different brands that offer credit scoring and some of them even offer several different scores of their own. So which one is best? Well, in the credit scoring world FICO is top dog. FICO scores are the most widely used by lenders. However, FICO provides 49 different scores that lenders can look at.
How is a score determined?
The good news is that a credit score is really a pretty straight forward mathematically determined number. However, we don’t know what know the exact formula is because organizations like FICO keep them confidential. What we do know are the general things that scores take into account and how they are weighted. Here is a breakdown of these different weights:
- 35% is your payment history. This is the biggest factor and thus the most important. This is everything involving the payments, bills, mortgages and loans of your past. Any late payments will show up here.
- 30% is the credit you use. Your score is positively impacted here by paying off debts.
- 15% is the length of your credit history. The longer the better.
- 10% are the different types of credit you use. The more variety the better.
- 10% is represented by your recent searches for credit. The less the better.
How can I improve my score?
There are a variety of ways you can improve your credit score. One easy way is to simply wait. An impactful aspect to the scoring system is timeliness. For instance, if you’ve recently been late on some payments, waiting a year or two before you apply for something that requires good credit can improve your score. This is because your more recent occurrences are weighted more than old ones. While you wait, make payments on time and pay off your debts.
However, if you are in debt, you may find it necessary to use an organisation to help you. While settlement and consolidation groups don’t claim to help you with your credit score, organisations like Consolidated Credit offer you planning and advice that may help you make your debt more manageable. Understanding credit scoring is a major advantage when it comes to building good credit and making you a reliable bill payer. Even a simple understanding of the basics goes a long way in improving your chances with lenders.