Understanding Your Credit Score: A Beginner’s Guide

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A person’s credit score contributes significantly to their ability to access financial help, mortgages, and other lines of credit that can help them move forward in life. It’s important to understand how to read your credit score and make moves to improve it so that you can take advantage of the options it can afford. 

In the long run, a good credit score will save you money in a lot of ways. Whether it’s getting lower interest rates on loans you take out, or simply using credit to increase the value of an investment or project. We’re going to take a look at how credit scores work in this article, giving you some much-needed credit score assistance. 

Let’s get started.

Basic Credit Score Assistance: Understanding Credit Scores

The first thing to understand is that your credit score is a number used by lenders to determine your creditworthiness. Simply put, this is a way for lenders to know whether or not they will have luck borrowing money to you. The score is a relatively accurate approximation of how likely you are to pay back the money that you owe. 

When your score is too low, you’ll have fewer options for receiving loans. Additionally, those options will include higher interest rates, fewer perks, and they’re often predatory. On the other hand, those with good credit tend to get access to the financial options that are easiest to pay back and save the most money on interest and fees. 

A person has to work to build up their credit score in the first place, and that process can take a lot of time. The unfortunate thing is that credit takes a long time to build but hardly any time to damage. A missed mortgage payment or two might send your credit far back down, making it a lot harder to keep improving. 

Different Types of Scores

Your credit score as created by one of a few trusted agencies. Most people use the FICO score, but there are also other institutions that have access to provide you with their own scores. Differences between credit scores that you pull up are likely to be marginal, and all of the institutions have about the same ability to accurately find your score. 

If you request a credit score and think there’s something wrong with it, it might be a good idea to get your score from a few other institutions to make sure that there aren’t inconsistencies. The nice thing is that most credit score checks are free, although they might actually put a ding in your credit. 

Most times that your credit is pulled and checked, it will drop a little bit. We’ll get to that idea in a little bit, but we’ll discuss factors that make or break your score in the next section. 

Credit scores can vary anywhere from 300 to 850. The lower the number, the worse your credit. 

Any score that falls from 300 to 629 is considered poor and should be improved. From 630 to 689 is considered fair, but there’s still a good deal of room for improvement there. 690 to 719 is thought to be pretty good credit, if you’re sitting in that range you don’t have too much to worry about. 

720 and up is considered excellent. If you’re in this bracket, you’ve likely taken out some successfully-paid lines of credit and have been paying your bills on time. It’s a challenge to get to this number because it simply takes time and requires real effort to pay your bills on time and keep everything in order enough to never slip up on your score. 

How Credit Builds

In order for you to start seeing improvements to your credit, you have to start doing the things that FICO and other institutions recognize as creditworthy behavior. The first thing to do is just to pay your bills on time. Everything from your rent to your electric to your car bill. 

These aren’t technically lines of credit, but they’re looked at in the process of determining whether you’ll be able to pay back lenders or not. You won’t see huge advances in your score as a result of your good rent payment, but you might see a little improvement over time. The important thing is that you won’t see a decline. 

A big part of credit isn’t so much offence as it is defence. Preventing bad things from happening and lowering your score is just as important as taking action and making moves to help your credit. In terms of things you can do to move your score forward, there are a number of things you can do. 

Lines of credit are the most direct way that you can prove yourself. That said, it’s difficult to take out lines of credit without having credit in the first place, so you’ll have to start small. There are a lot of low-end credit cards that a person can take out in order to start building credit. 

A credit card is tricky, though. It’s a smart move to take out the card, use it once per month, and simply pay off the balance whenever it is due. Using the credit card is all that you need to do to build credit. It isn’t as if you get more credit the more you spend. 

What matters is that you use it once per month and pay your bill on time. Over time, your credit will rise and you’ll start to see that you have more options than you did before. Maybe your mortgage payment will be significantly lower, maybe you can take out the business loan you always wanted. 

Keep your credit score in mind as you go through life, making sure not to do anything that would put it in too much jeopardy. Additionally, know that you can ask for credit assistance from a professional whenever you need to. 

Want to Learn More?

Understanding credit scores and having options for credit assistance is extremely important. We’re here to help.

Explore our site for more ideas and insights into financial health and wellbeing.  

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