Everyone talks about the importance of having a good credit score, but few understand its real value when it comes time to making major financial investments. Having a better understanding of how your decisions affect your credit may help improve your overall score and give you perks down the line — like special financing, reduced down payments and smaller monthly payments. That means more savings for you.
How Is a Credit Score Calculated?
The “credit score” is a tool developed by studying the behavior of millions of consumers and their debt repayment habits over time. The repayment trends create a statistical model that helps inform the future trends of an individual and their risk of becoming delinquent or default on a loan. Financial institutions use your credit report and credit score to determine whether or not to lend money to you and at what rate.
What Is a Good Credit Score?
The majority of credit scores fall between 600-750. 700 or higher is considered a good credit score, since the higher your score number, the lower your risk.
Why Is a Good Credit Score Important?
Understanding your credit score and maintaining good credit can largely influence your ability to make purchasing decisions. A variety of people will consider your credit score for a number of reasons, including:
- Mortgage lenders
- Vehicle loan lenders
- Credit card companies
- Landlords and leasing offices
- Prospective employers
Credit scores take a number of factors into consideration when creating your score number, including the number and severity of your late payments, your total debt, public records and the type, number and length of your accounts.
How to Improve Your Credit Score
Improving your credit score takes effort but it can be done. You’ll need to:
- Pay bills on time
- Catch up on missed payments
- Keep balances low
- Get debt under control. Call your bank if you feel out of control.
- Don’t close unused credit cards