A compiled report that contains actions of your financial decisions and provides overall results to lenders is called a credit score report. Moreover, the major credit bureaus — Experian, Equifax, and TransUnion generate the credit score reports. Eventually, based on your credit score report, potential creditors or lenders make their financial decisions.
“A Credit Score report could be referred as a financial CV for consumers”
In this article, we will thoroughly cover all the aspects of credit score. We will cover good credit score, credit/debt, errors, negative information, usage, monitoring report, FICO® score, VantageScore, factors affecting credit score, the importance of credit score, improvement, ranges, finding credit score, and changes over time.
Let’s dive in.
What is a Good Credit Score?
A ‘good’ credit score can help you to sail effortlessly towards potential creditors or lenders. Ultimately, your lenders will decide to provide your financial loan or related funds based on your credit score. Furthermore, credit scores are a crucial part when it comes to financial grants and gaining the trust of your lenders.
Moreover, credit score ranges from 300 to 850. If you specifically want to target an exceptional credit score then you must have an 800 or above credit score range. However, if you have poor scores then you will face certain financial burdens. And, you will not get loans or related aspects so easily.
Why is my Credit Score High or Low?
Credit Score never remains at one point. It changes over time due to certain factors that impact the credit report such as payment history, debts, new accounts, and more. Check out the following points:
- If any single payment is delayed or late for the last 30 days or above then your score will get lower. To maintain your good score, make sure to make timely payments.
- If you detect a much lower score then some other credit activity has been reported as yours. It could be due to frauds or scams that operate a new account under your name. However, if you encounter such a case then immediately contact your credit card company.
- In case you apply for a loan or new credit card, then your credit score may plummet. Note that if you have multiple credit applications then it causes high risks. It further results in a lower score.
- Apart from timely payments, you have to consider other factors too such as credit utilization ratio, new credit accounts, and more.
Credit and Debt
For Credit, it simply means ‘Buy Now, Pay Later.’ If a company allows you to purchase something and lets you pay for it later with time. It is called credit. Moreover, this company could be a department store, electronic store, bank, or credit card company.
On the other hand, debt means that you owe money to others such as banks, stores, credit card companies, and more.
Learn the Basics of Credit Reports and Scores
A credit report is an overall summary that defines your financial health. It provides information on how you managed and handled your credit accounts. It is further analyzed by potential creditors and lenders who make lending decisions. And, they check with the help of this report if you are fit for lending or not. Moreover, you need to make sure to check and monitor your credit report regularly to maintain its accuracy.
Furthermore, a credit score is a three-digit number that signifies a consumer's creditworthiness. This number score ranges between 300 to 850. In addition, there are several elements that define a credit score. It includes payment history, the total level of debts, repayment history, and more. Moreover, if you have a high score then you will have a smooth ride when it comes to lending.
Errors on Your Credit Report
Following is the list of errors on your credit report. Check them:
- Someone misread or filled in wrong information such as your name or address that resulted in a clerical error.
- In case you are divorced then make sure that their debts are not reflecting on your report.
- Make sure to remove all the poor debts from your report. Otherwise, companies will remove it after seven years.
- Shield your credit card report from any kind of suspicious activity or fraud.
- Make sure that report doesn’t show ‘closed by grantor’ if you have closed a credit account. Otherwise, it will seem that the creditor shut the account, and not you.
- Payments on a loan or credit card may have been applied to the wrong account by mistake.
- In some cases, lenders see higher debts or more open lines due to some errors. However, that is not the case in reality, so stay alert.
Negative Information in a Credit Report
If you have negative information in your credit score report, then you have a lower credit score. Further, negative information includes certain elements. It includes delinquent accounts, missed or delayed payments on credit cards or loans, charge-offs, foreclosures, bankruptcies, lieu in foreclosure, short sales, and accounts sent to collections.
Moreover, negative information could affect your credit cards and obtaining loans. No matter if you have single negative information or multiple negative information, you will face the consequences. As a result, you may not be qualified for credit card loans. However, you will get rid of negative information from your credit report over time. But, there is no fixed duration on when it will get removed.
Although, you have an option to add or provide a statement of explanation. It would define the situation related to specific items that led to negative information.
How are Credit Reports Used?
Credit Score reports are used to check your financial worth by potential creditors or lenders. If you have an exceptional credit score then you will not face any issues with loans and other non-lending options. Also, you will lower interest rates on your loans. On the contrary, if you have lower scores, then it is quite difficult to obtain loans and to gain the trust of lenders.
Why Should You Check Your Credit Report?
To maintain the well-being of your financial health, make sure to check your credit report regularly. It provides you with better access to learn and understand your current credit position.
Furthermore, you definitely want to provide a good report to lenders. Therefore, you must be aware of the fact that your lenders will see your reports. So, make sure to monitor your credit report regularly.
You will get notified if any changes occur on your credit score report. And, you can take necessary actions on time to improve your credit score.
Lastly, checking your credit report helps to detect any suspicious activity. It further helps to shield your credit report from any scams or fraud.
How Do You Check Your Credit Report?
You can easily check your credit report. There are three credit bureaus that finalize credit score reports for your business. It includes:
Experian: You can make use of MSE Credit Club. It gives full access to your credit score report for a 30-day free trial.
Equifax: You can make use of Clearscore. It offers a free credit score report.
TransUnion: You can make use of Credit Karma. It provides you access to your TransUnion report for free.
Moreover, you can subscribe to the paid version as well which will show your credit score reports in detail. However, if you want to use free versions then you will get only partial information. Though, it helps to improve your credit score.
What Is a Good FICO® Score?
The Fair Isaac Corporation developed a credit score called a FICO score (FICO). It further creates different kinds of consumer credit scores. Moreover, lenders assess credit risk and decide whether to offer credit based on borrowers' FICO scores and other information on their credit reports.
FICO® Scores vary from 300 to 850. However, the good score ranges from 670 to 739 by FICO.
Refer to the FICO score table below for a better understanding:
What Is a Good Vantage Score?
A Vantage Score is a credit score produced collaboratively by the three major credit bureaus. It further helps to analyze your likelihood of repaying a loan. Moreover, lenders, landlords, and financial organizations utilize it to assess creditworthiness.
Further, the 300 to 850 range is used by the two newest Vantage Score credit scores (Vantage Score 3.0 and 4.0). These are the same as the base FICO® Scores. Finally, VantageScore considers 661 to 780 to be a reasonable range for the most recent models.
Refer to the Vantage Score Rating and score table below to learn in detail:
What Affects Your Credit Scores?
Certain factors affect your credit score. We have listed all the five categories of these factors in detail. Let’s check:
- Payment History: Make sure to make timely payments as it will impact your credit scores. Any delayed or missed payments or filing bankruptcy could negatively affect your credit report.
- Age of Credit History: Lenders check the age that you’ve your active account. Also, if you have handled your credit accounts wisely for a longer period, then your scores will be better.
- Current amount of indebtedness: It defines your available credit utilization. Lenders refer to this as your credit usage ratio. Also, it tells lenders whether you're living well within your credit limit or whether you're already financially strained.
- Credit mix and experience: It evaluates whether you have handled certain sorts of credit. It includes mortgage, credit card, vehicle loan, personal loan. Demonstrating that you can safely manage both types of accounts — installment and revolving accounts — improves your overall score.
- New credit accounts: In case, you have recently started a lot of new accounts, you're more likely to be considered a credit risk. However, credit bureaus are becoming more adept at recognizing that customers shop around and that this behavior isn't necessarily viewed negatively.
Furthermore, the relative relevance of the categories is explained differently by FICO® and VantageScore.
FICO® Score Factors
FICO scores take into account data in five categories to evaluate creditworthiness. It includes:
- Payment history: 35%
- Types of credit used: 10%
- Current amount of indebtedness: 30%
- New credit accounts: 10%
- Length of credit history: 15%
The most recent edition, VantageScore 4 is a credit score based on an average of 5 weighted elements. It includes:
- Payment history: Moderately Influential
- Age of credit history: Less Influential
- Credit mix and experience: Highly Influential
- Total credit usage, balance, and available credit: Extremely Influential
- New accounts opened: Less Influential
Factors that are considered by Credit Score
Here is the list of the following factors that are not taken into consideration when calculating credit scores. Check them:
- Living Place
- Salary/Occupation/Title/Employment History or date employed/Employer (However, note that lenders review these elements when making overall approval choices.)
- Race/Color/Sex or Marital Status/National origin (These factors, as well as any receipt of public assistance or the exercise of any consumer right under the Consumer Credit Protection Act, are not taken into account by credit scoring formulae in the United States.)
- Alimony and Child Support Payments.
- Soft Inquiries: It is generally started by companies that launch promotional offers of credit. Furthermore, when you examine your credit report or use credit monitoring services from organizations like Experian, then soft queries occur as well. Also, note that your credit scores are unaffected by these inquiries.
Check the following chart that summaries the above details:
Why There Are Different Credit Scores
Credit Scores works as a toolkit for lenders to examine and finalize their lending choices. Further, VantageScore and FICO® build credit scoring models for lenders. However, both the firms release new editions of their credit scoring models on a regular basis.
FICO® is a more established company that was among the first to develop credit scoring models. It was based on consumer credit reports. Moreover, it developed distinct versions of its scoring algorithms for each credit bureau's data. The newest version is FICO 9. But, the most commonly used version is FICO 8.
On the other hand, VantageScore was created in 2006 by three credit agencies. These agencies are Equifax, Experian, and TransUnion. Furthermore, VantageScors’s purpose was to provide credit scores to more people, such as immigrants, students, and so on.
Eventually, lenders can use any model they like. In fact, some lenders may opt to continue with older versions due to the potential expenditure required to transition.
However, you won't know which credit report and score a lender will use after you submit your application. Fortunately, all consumer FICO® and VantageScore credit scores are based on the same underlying data that is the information from one of your credit reports.
As a result, your credit ratings may be affected by the same things. If you track numerous credit scores, you may see that your results differ based on the scoring model. However, you may see that they all tend to rise and fall together after a period of time.
Why Having a Good Credit Score Is Important
Having a good credit score report would enhance your ride to achieve your financial goals efficiently. Maintaining a good score will be beneficial to easily obtain financial loans from lenders such as home loans, home mortgages, and more. Also, you will get low interest rates on your loan, which is another benefit.
Furthermore, lenders will easily build their trust in you due to your good credit score report. And, you would save your time and energy and won’t face any issues while obtaining a loan.
In addition, you will also get an advantage with non-lending decisions. For example, landlords renting homes or apartments to you, promotions or hiring decisions, or insurance decisions.
How to Improve Your Credit Scores
Check the following list that would help you to improve your credit scores:
- On-Time Payments: You must win lenders' trust by demonstrating your ability to manage credit responsibly. On the contrary, a single late payment can damage your credit scores. And, it can stay on your credit report for up to seven years. And, lenders will not loan you easily. Therefore, you need to make sure to pay your debts on time to improve your credit score.
- Try to keep your business credit card usage to a minimum. Assume you had a $2000 limit and only used $1000 of it. Then your card will be used 50% of the time. On the other hand, companies look favorably on a lower percentage. However, try not to fall below 25% utilization. So, make sure to maintain a low credit utilization rate.
- Try to apply for a loan only when you require it. However, if you apply for multiple loans in a short interval of time, then it may affect your credit score.
- If you are opening accounts then make sure that it gets added to your credit report. Further, it could be revolving accounts or installment accounts.
What to Do if You Don't Have a Credit Score
Credit reports are utilized to analyze and reflect your credit score. However, if your report doesn’t have complete details then the bureau cannot assign scores.
Moreover, make sure to meet these requirements to obtain FICO® scores:
- An account that is at least 6 months old.
- An account that has been active for the past 6 months.
On the other hand, if the account is even a month old, VantageScore can evaluate your credit report if it contains at least one current account.
However, to start establishing credit, you may need to create a new account or add fresh activity to your credit report. Use this method if you aren't scoreable. Moreover, starting with a credit-builder loan or secured credit card, or becoming an authorized user, is often the best way to go.
Why Your Credit Score Changed
Credit score changes due to certain reasons. It is important to understand that credit score never remains constant. It rises or falls throughout the month as new data or information gets updated to your credit reports.
Furthermore, factors that impact your credit score include payment history, debt, and its usage, new accounts, age of credit history, and credit mix. For example, if you have a history of missed or delayed payments, then your credit score will get low. Conversely, making timely payments would increase your credit score.
However, some acts may have unanticipated consequences for your credit ratings. Paying off debt may result in a decline in your credit score, despite the fact that it comes under sensible money management. This could be because it was your sole open installment account or the only loan with a low balance on your credit report.
On the other hand, if you decide to discontinue using your credit card after paying the debt. Then, your lack of activity would negatively impact your credit score. Therefore, make sure to keep your account active to maintain a good credit score.
How to Check Your Credit Score
Previously, it was an arduous task to check your credit score. However, you get certain access by which you can easily obtain your credit score. Also, you can get free options as well.
You can check your score via bank or from credit bureaus such as Equifax, TransUnion, and Experian. Moreover, you can check your FICO® Score 8 for free depending upon your Experian credit report.
Interestingly, you can also check multiple credit scores at once. All you need is an
Experian CreditWorks℠ Premium membership.
Monitor Your Credit Report and Score
Checking and monitoring your credit score and report should be your regular task. It helps to examine certain elements before making any financial decision.
Moreover, it assists to analyze and improve problems, protect from frauds, detect suspicious activity(if any), changes in reports, and errors or miscalculations. As a result, you can protect your credit score from all these factors by monitoring on a daily basis. And, you may easily get qualified for loans, insurance policies, or credit cards. Consequently, monitoring credit reports boosts your financial health.
In addition, you can get your free credit monitoring, which is offered by Experian. Also, you will be notified or get alerts of all the changing activities.
How a Good Credit Score Can Help You
A good credit score removes all the roadblocks from your financial path. Here is the list of advantages of having a good credit score. Check out:
- Provides easy access to obtain loans with low-interest rates from potential creditors or lenders.
- Helps to build trust among lenders or creditors.
- It helps to enhance your reputation.
- Some property management companies or landlords are highly strict. Then, a good credit score helps to gain their trust and rent an apartment.
- Helps you to obtain the best rates on insurance policies and auto vehicles.
- You get the best rewards, incentives, and introductory offers on your new credit cards.
Credit Score Ranges
Here is the list of credit score ranges in detail. Let’s study:
Excellent or Exceptional Credit Score (800 to 850)
You will be assigned this best score when you will have no low balances on credit cards and zero history of delayed payments. Also, you will obtain lower interest rates on loans, credit cards, mortgages, and lines of credit. Moreover, this score helps to efficiently gain the trust of lenders easily.
Very Good Credit Score (740-799)
This score signifies that you are financially wise and well-handled with your money and credit management. Also, you can easily get loans or funds as you have no history of delayed or missed payments.
Good Credit Score (670-739)
With this score, you will come closer or slightly above the average U.S. consumer (FICO score 711 as of Oct 2020).
However, they may still be able to obtain competitive interest rates. But, they are unlikely to be able to obtain the optimum rates offered in the two upper groups. As a result, they may find it hard to obtain some types of credit.
Fair Credit Score (580-669)
You will get his fair credit score if your credit score ranges from 580 to 669.
However, they may have a few blemishes on their credit report, but no serious defaults. Furthermore, lenders are still inclined to give credit to them, but not at very low rates. Moreover, borrowers in need of money can still locate good personal loan options, even if their selections are limited.
Poor Credit Score (Under 580)
If you have obtained a score between 300 to 579, then you have a poor credit score. It signifies that you have a poor history of timely payments and other aspects. It may be the result of bankruptcy that stayed on the credit report for 7 years.
No Credit Score
It is necessary for everyone to begin as an amateur. However, if you have a low credit score (that comes under 350). Then, it means you haven't opened any accounts and have no credit history.
Moreover, you can inquire about your local lender's borrowing criteria. Make sure to set up a timely repayment habit when you get your first loan or credit card to develop a strong credit record.
How good should my credit scores be
Simply put, a credit score is a three-digit score that ranges from 300 to 850. Furthermore, certain factors influence your credit score that eventually reflects in your report. These factors include payment history, amount of debt, credit length history, and more.
Although, if you want to earn a reasonable score then your credit score must range from 580 to 669. Next, the range from 670 to 739 is considered a good score, and 740 to 799 is counted as a very good score. Eventually, a range of 800 or above is regarded as an exceptional or excellent score.
How long does it take to get a good credit score?
Of course, this is an interesting question that definitely crosses one’s mind!
Generally, you can expect around six months — and maybe a longer period to step into a good-to-excellent range of credit score.
How do I find out what my credit scores are?
You can check your credit scores directly through credit reference agencies such as Experian, Equifax. Note that you have to pay a fee to purchase your credit score report. In addition, Experian offers its services starting at $39.95 for credit score reports.
Here's a bonus tip if you want to use free services to check credit scores. You can make use of CreditSignal, CreditSafe, Nav, and Credit.net. However, these free services provide only partial information for your credit score report. But, you may still use them for improving your credit score.
Different scores at each credit bureau
Your credit scores get examined by three major credit agencies — Experian, Equifax, and TransUnion. However, your credit score may differ as your data or information provided to these agencies may vary.
Note that all three agencies won’t receive the exact same information about your credit accounts. However, some lenders do check through all three reports, while others don’t check all three bureaus’ reports. Also, if you see your reports over time, you will find some discrepancies. It is due to some scores getting outdated.
Lastly, your credit scores may differ due to some errors that reflect on your credit score report. Further, make sure to dispute errors to shield your credit score report from any harm.
Your credit scores will change over time
Credit Scores are never static and modify with time due to certain factors. These factors are analyzed by national credit bureaus — Experian, Equifax, and TransUnion.
Below is the list of elements that are examined and updated by bureaus and are reflected on your credit report. It includes:
- Payments History.
- Credit Card balance changes.
- Your total outstanding debt
- New loans, new credit applications, or new credit accounts that you’ve opened.
- In case you use Experian Boost, then your credit score relies on data that reflects your mobile payments or other utilities.
Additionally, the credit card bureaus receive information about your activity from lenders, card issuers, and your other financial companies.
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We have summarised all the important points of this comprehensive guide. Let’s learn:
- A ‘good’ credit score can help you to sail effortlessly towards potential creditors or lenders.
- Credit score ranges from 300 to 850.
- The good score ranges from 670 to 739 by FICO.
- VantageScore considers 661 to 780 to be a reasonable range for the most recent models.
- Three credit agencies finalize credit score reports— Experian, Experian, TransUnion.
- Credit Score changes over time due to certain factors such as payment history, debts, and more.
- If you have negative information in your score report, then you have a lower credit score.
- Factors that affect credit score include Payment history, Age of Credit History, Current amount of indebtedness, Credit mix and experience, New credit accounts.
- Monitoring credit reports boost your financial health.