Everything you should know about credit card scores.
Did your financier or bank just mention “credit card score”? Are you looking to boost your credit card privileges and do you want to know more about how a credit card score can help? You clicked on the right article!!!
A credit score is one of the tools used by lenders or financial institutions to ascertain if you are eligible for credit. It is represented by numbers and the higher your number is, the more eligible you are for credit. A credit card score is really important especially if you use an active credit card.
Financial institutions use credit scores to determine how possible it is for a person to repay a loan on time. The FICO (Fair Isaac Corporation) scoring system is the most preferred for financial organizations.
What if I have a bad credit card score? Well, It will ruin your chances of getting credit and you do not want that! So, knowing your credit card score or keeping an eye on it is important.
Keep reading to know everything about a credit card score.
What is a Credit Score?
A credit card score is a numerical representation ranging from 300 – to 850 that determines if an individual is credit-worthy. If your score is high, say from 740 to 850, lenders would be willing to give you credit.
A credit score doesn’t just magically increase or decrease. It is not controlled by the financial company. But, lots of factors that you can control could be responsible for a high credit score or a low credit score. These factors include credit history, the total number of debts, payment history, type of credit, and more.
A credit score can influence lots of financial transactions like credit cards, mortgages, auto loans, and even private loans
There are other credit-scoring systems aside from the FICO score like VantageScore. The VantageScore was created by the top credit bureaus: TransUnion, Experian, and Equifax.
But, the FICO score is used by more than 90% of top lenders to calculate a consumer’s credit score. There is a huge possibility the credit company you partner with employs the FICO scoring system. What is next?
How are FICO Scores Calculated?
Many factors influence how good or bad your credit score is – and FICO uses these factors. FICO scores are calculated using different factors already compiled in your credit report. These factors are grouped into five categories:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Each category affects how your FICO score is calculated. These categories are important for your credit score and shouldn’t be joked with.
- Payment history
The first thing any lender looks at is how timely you pay your past credit. It accounts for 35% of your credit score. If you usually pay your debts late, a lender may view you as a potential risk and find it hard to issue you credit. This is the first and most important factor for calculating a FICO score.
- Amounts owed
Next on the list is the amounts owed and it accounts for 30% of your FICO score. Credit utilization rate is an important factor that can affect your credit score, either positively or negatively. It is usually advised that you use less than 30% of your credit limit balance.
- Length of credit history
This includes the age of your old and new account(s) as well as the average age of all your accounts.
- Credit mix
In as much as it accounts for 10% of your credit score, it is still important. It shows the type of credit that an individual has. It could be a blend of installment credit like car loans, mortgage loans, and revolving credit like credit cards. Having a credit mix can boost your credit score and prepare your account for credit rewards.
How Does a Credit Score Work?
As we mentioned earlier, a credit score can affect lots of financial transactions. A credit score ranging from 679 and above is good and may cause an individual to receive low-interest rates and other benefits.
According to FICO:
- A score of 800 – 850 is generally considered excellent.
- A score of 740 – 799 is generally considered very good.
- A score of 670 – 739 is generally considered good.
- A score of 580 – 669 is generally considered fair.
- A score of 300 – 579 is generally considered poor.
Credit scores are calculated by gathering information from your credit accounts. Credit reporting agencies are also known as credit bureaus perform this information collection and compile it into your credit reports.
The three major credit bureaus responsible for credit report compilation are Equifax, TransUnion, and Experian. Each bureau can compile a unique credit report and credit score.
Lenders often access the credit reports of a borrower before deciding if an increase in credit score is necessary. We cannot overemphasize the importance of credit scores. So, if you have an excellent or very good credit score, you are more eligible to receive credit and other credit card rewards/benefits. If your credit score is low, it is necessary to improve it.
How to Improve Credit Score?
A bad credit report can cause your credit score to fall while a good credit report can cause it to rise. If a piece of new information is added to your credit data like an outstanding debt or healthy credit card, it can either reduce or increase your credit score.
If you are asking “how do I make my credit report positive”? There are lots of ways to do that which can boost your credit score in return.
The following are the ways to boost your credit score.
- One of the ways to build your credit score is to ‘pay your bills on time.’ If you have outstanding debts of more than 3 months, it may negatively affect your credit score.
- Maintain a good credit utilization rate by keeping credit card balances under 30% or even lower.
- Do not close a credit card account instead, stop using it. You could decide to carry out minimal transactions on it. Closing an account may cause a ding in credit scores.
- Make use of good credit repair companies.
- Ensure the time frame of the credit application is long instead of short.
A credit score is a three number digit that helps lenders ascertain if a borrower is eligible for credit. Before a financial organization issues out credit to you, your credit score must be on the high side. This article contains everything you need to know about credit scores.