Credit Score 101: What you need to know
Posted by MoneyKey
on October 5, 2015
Who looks at a Credit Score?
Many people don’t realize that their credit score is frequently reviewed by mortgage providers, landlords, car dealerships, and sometimes even employers. Having a bad credit score can affect your ability to qualify for a mortgage or increase the rate which you will pay on your car loan.
What is a Good Credit Score?
A credit score can range from 300-850. There is no specific magic number for an acceptable credit score as this can vary depending on the type of loan, lenders’ policies and economy. Traditionally the division between ‘prime’ (good) and ‘subprime’ (not so great) is in the mid to high 600s, so having a credit score of 700 (or higher) will allow you to secure the best rates for larger purchases like a house or car.
What Affects your Credit Score?
Having a long, steady history is a key marker in determining credit scores. This mean having borrowed money in various forms like a mortgage, credit cards, car loan, etc. and fully repaying them.
If your payments are frequently delinquent this will cause your credit score to decrease.
While many situations cannot be helped, having a public record like a past bankruptcy can frequently lower your score.
Another factor that determines your score is the amount of credit borrowed versus available. This means if all of your credit cards are maxed out your score will be lower than someone who uses less than 30% of their available credit limit.
If a lot of companies are asking for your credit report (employer, mortgage provider, etc.) this can cause a slight decrease in the score, however this is decrease is only temporary.
Learning the ways you can positively, or negatively, impact your credit score is critical to help maintain or improve your financial health. To improve your score it is important to pay off any late or unpaid loans or mortgage payments as soon as possible and to never extend yourself past what you can afford to repay. Taking the steps now to improve your credit score will help you save money in the future because you will be able to secure better rates.