So, you plan to get either a credit card or a loan but before you can avail one, you will be asked to present your credit history. In that piece of paper, there is a number called the credit score and it can ultimately affect if you’re getting your credit card or loan application approved.
What is the credit score and how does it affect you? In this article, I will talk about all you need to know about the credit score.
What is a Credit Score?
It is a three-digit number that allows banks or financial institutions to know if you’re a good borrower. Essentially, the score will tell them your capability to pay the debt.
Let me paint a scenario here. Suppose there are three people: one is someone whom you know is a trustworthy person, the other person has a track record of becoming a rogue and not paying bills, and the last person is someone who you do not know.
Which person will likely be given the permission to borrow money? I am willing to bet your answer is the person you can trust.
The credit score basically tells that to the banks and other financial firms. A good credit score means that the person can be trusted with money and that they can pay the debt in due time.
A bad credit score, however, tells them that although you might pay the amount you’ve borrowed, you might not pay it on time or you might not pay it at all.
Where can you get a Credit Score?
Now that you know what it is, where can you get your credit score? Well, you can get it from credit reporting agencies.
There are a lot of them out there. But, what exactly is it that they do to ultimately come up with your score? Well, they are keen on three things:
- How much money you’ve borrowed ever since
- The debts you owe
- And whether or not you’ve been making timely payments
If you are the type of person who just borrows money just for the sake of it without really putting into consideration if you can pay it in time or not, then your credit score will likely dip.
Conversely, if you borrow just enough money that you can pay in, say, 3 months or so, then your credit score will increase.
Basically, if you borrow money and pay them in due time, you’re most likely going to get either a good credit score or even an excellent credit score. If you do not pay your debts in a timely manner, you’re going to get a bad score.
So, how will you know if you have a good credit score? Here is a basic rundown
- Scores above 760 are considered Excellent
- Scores within 700-759 are considered Good
- Scores below 650 are considered Bad
How to Improve Your Credit Score?
It is very easy to improve your credit score. Here are some tips:
- Make sure to pay your debts on time
- Do not use your credit card too much, especially if you cannot pay it on time
- Instead of using your credit card, you can use other financing options such as the cash advance online.
- Do not borrow too much money
Keeping a good credit score will make things easier for you. Whether you’re applying for a new loan or a credit card, you will get them without hiccups if you keep your score at either good or even excellent.
Ensure that you keep your score high and avoid getting a negative or bad credit.
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