What is Credit Score
A credit score is a tool that lenders use to determine if they should give you a loan, mortgage or extend you credit. There are factors from your past measured in points, called a credit score at a particular time, which lenders use to predict how likely it is that you will repay a loan when it is due.
A credit score is a number, generally 300-850, assigned to you to rate how risky a borrower you are. The higher the score, the safer you are for creditors and they can give you better interest rate. Score 750-850 is considered excellent, 660-749 is considered good, 620-659 is considered fair and 350-619 is poor.
If you want the best loan, make sure your score is the highest it can be. Just remember, a poor score costs you more. Your future credit depends on your credit activity now. Review these scores at least three to six months before shopping for a loan so you'll have time to improve your credit score if you have to.
Here are some important ways to improve credit score:
- You can go to www.annualcreditreport.com to get a free credit report once every year without having credit inquiry
- Check your reports from credit bureaus for accuracy once a year and correct if necessary.
- Pay your bills on time. This is always a good practice to increase score
- Reduce your credit card balances. Generally, it's good to keep your balances at or below 25-30 percent of your credit card limit.
- Pay off debt rather than moving it around for lower rate. Closing out an account and transferring the balance will hurt the score.
- Don’t open a lot of new accounts over short period of time or don’t open at all if don’t need to.
- A credit card or installment loan can raise your score as long as don’t have high payoff and paid timely manner
- Do not co-sign for any one if you do not have to. If something happens it will affect your credit score.
What factors affect in credit score
1. 35% - past payment history
2. 30% - amount owed
3. 15% - length of history
4. 10% - types of credit in use
5. 10% - new credit
