Credit Score

A credit score affects a fairly large list of services a financial institution can provide. Mortgages, personal loans, credit cards — everything depends on the credit score. This also includes the loan terms. So pay attention to the peculiarities of credit rating formation.

What is the essence of a credit score?

It is a three-digit number that assesses a person’s creditworthiness. According to FICO, the score can vary from 300 to 850 points. The higher the number, the more likely a person is to get a loan. This score is based on the user’s credit history. Each financial institution always keeps this information about its customers. Therefore, a credit score is calculated based on the following components:

1. The total amount of debt.
2. Number of accounts.
3. Repayment history. It includes information about whether the borrower paid the bills on time. Particular attention is paid to overdue payments.
4. Types of loans. The more of them, the better. It can be a mix of credit cards, a car loan, and a mortgage. A combination of loans indicates that the borrower is responsible and can manage them.
5. Use of credit.
6. Duration. It is believed that the longer a credit history lasts, the less risky it is. Thus, the lender can collect more data about the borrower.
7. Whether there are applications for new loans to repay previous ones. This negatively impacts the credit history.

What does a credit score affect?

This number is vital for a lender’s decision to grant a credit. It also affects lending terms, including interest rates. In turn, this helps you save money in the long run. In addition, financial institutions, future employers, utility companies, and other service providers pay attention to credit ratings.

Types of credit scores

Various systems can be used to determine a credit score. The most authoritative of them is FICO. It offers the following classification.

• 800-850 is an excellent credit score, which gives the highest chance of getting a loan;
• 740-799 — very good;
• 670-739 — good;
• 580-669 — average chances of getting a loan;
• 300-579 — poor credit rating.

How to improve your credit score?

A credit score affects a person’s financial life. Even if you are not going to take a loan, you should take care of your credit score:

1. Pay bills on time.
2. Increase the credit limit. This indicates that the user is not afraid to operate with large amounts and can control expenses.
3. The presence of credit cards. These accounts should not be closed, because such an action can worsen the credit score.
4. Correct and high-quality credit report. There must be no errors in it.

A credit rating is the information that most influences a lender’s decision to grant a loan and its terms. Financial institutions can calculate a credit score in different ways, using various factors that influence it. In any case, the quality of credit history and, accordingly, the score are important.