Credit Score – How Credit Score Works

Credit Score, otherwise called credit rating, is a numerical representation, which depends on a level analysis of a person’s credit files that represents the creditworthiness of an individual. A credit score is a credit report information sourced from Credit bureaus. It is also a key determinant in getting credit.

Credit Score

Banks, and Credit Card companies who are lenders, only need to take a look at your credit file and calculate your credit score (also known as credit score for short) to enable them to see the level of risk involved in lending to you.

Thus, your credit score matters when you want to get credit. You’ll only be offered credit based on your current credit score status. The interest rate of the credit you are offered also depends on your credit score. Thus having a good credit score, is something you should work to achieve.

Being able to get a credit card, also depends on the health of your credit score. Where you have a robust score, getting a credit card should not be an issue. But where you have a fair, or bad credit score, you may have difficulties getting approved for a credit card. So in this article, we have outlined how credit score works, the benefits of credit score, the different types of credit score as well as how to improve your credit score. This will help you know what to do.

How Credit Score Works

Even though the company you are applying to, determines how your credit score is worked out, there are still some basic procedures, that almost cuts across all bureaus.

Your credit score gets calculated, anytime you apply for credit, like a loan, credit card, mortgage, or even a mobile phone contract. The company you are applying to determines how your score is worked out. Thus, it is different strokes for different folks, when it comes to credit score rating as different companies have different methods, thus your credit rating may vary between them.

Benefits

A good credit score gives you a better chance of being accepted for credit at the best rates. This implies that the higher your credit score, the better chances you stand of influencing the following;

Insurance monthly payments
Car Financing
Property rentals
Credit cards, loans, and mortgages
Gas & electricity monthly payments
Mobile phone contracts.

What is a Good or Average Credit Score?

People always ask this question, “what is a good or average credit score”? Here, we will be giving an answer to this question, to help you know the category you fall in.

When it comes to credit score, there’s no perfect number that can guarantee your approval, since different companies look for different things in their potential customers. This implies, that you may be refused credit by one, and get accepted by another.

On a general note, we consider a good credit score to comprise of the following;

Good: It should be between 881 and 960
Fair/Average: 721 and 880

The stronger your credit score, the easier it is for you to access credit or loans.

How to Check Your Credit Score

You can use the following major credit scoring models, to check your credit score.

FICO Score Range: 300-850
VantageScore 3.0 Range: 300-850
VantageScore Scale (versions 1.0 and 2.0): 501-990
Experian’s PLUS Score: 330-830
TransUnion New Account Score 2.0: 300-850
Equifax credit score: 280-850.

How to Improve your Credit Score

Once you review your credit information and discover that they are not what you want or thought it should be, you should take the following into consideration to improve your credit score. Note, however, that your credit score will improve overnight. You’ll have to be patient and cultivate some good credit habits to see it happen.

Use Secured Credit Cards
Use a credit repair service
Make choices that can improve your credit score
Avoid things like late payments, liens, or bankruptcies.

As you cultivate these good credit habits, and your credit activities get reported to the three credit bureaus, (i.e.), Experian, Equifax, and TransUnion on a monthly basis, with time you’ll notice your credit score swinging to live.