If you have questions about your credit score, you’re not alone. Many Americans are confused about how to establish credit, how credit is calculated, and what can be done to improve a bad credit score. But the experts at CreditAnswers are here to help. Check out our guide below to better understand what your credit score means.
What Is a Credit Score?
A credit score is a number representing how reliable you are at paying off debt. This number is used to help banks and other lenders decide if they can depend on you to pay back a loan or if you should be approved for a credit card. All credit scores are a three-digit number on a scale of 300-850, with 850 being the best possible credit score. The better your credit score, the more likely you are to be approved for a loan and get a lower interest rate on that loan.
How Do You Establish Credit?
The best way to establish credit is by first opening a checking and savings account, then applying for a secured credit card. Use the credit card only for the sake of building credit, and try not to spend money you don’t have. Pay off your credit card bill on time every month, and you’ll improve your credit score over time. Your consistency will be rewarded!
How Is Credit Calculated?
Credit scores are calculated by a few credit bureaus, each of which uses a slightly different system to generate the three-digit number known as your credit score. Many of these companies do not explain the exact details about how the scores are calculated, but they are based on information in your credit report, including:
- Your payment history
- The amount you owe
- The length of your history
- How much new credit you have
- The type of credit you’ve used
Why Are Credit Scores Important?
Credit scores are important because they allow you to get approved for important loans like a home mortgage or car loan. The better your score, the more favorable the terms of your loan will be, which will save you a lot of money over time. Credit scores are also important for getting approved to rent a home, and for other applications that are based on monthly payments.
Is FICO Score the Same As a Credit Score?
FICO stands for Fair Isaac Corporation, which is the most widely known credit score company. This is the most important credit score because most lenders rely on this score to determine whether or not they will approve you for credit or a loan. However, the FICO score is just one credit score rating among many.
What Is Considered a Good Credit Score?
Your credit score falls into a range of bad to excellent. Anything above 700 is generally considered good, and a score above 740 is considered very good. A score of 800 or more is considered excellent or exceptional.
What Does It Mean When Your Credit Score is 0?
Technically, you can’t have a credit score of 0. In the U.S., credit scores range from 300 to 850. A “zero” score would mean you do not have any credit score at all, and have not established yourself as someone who is reliable at paying off debts. You must do things like open a bank account, get a credit card, and pay off some debts before you earn any type of credit score.
How Accurate Is Credit Karma?
Credit Karma is a free online service that allows you to see your credit score whenever you want, without paying a dime. But is it too good to be true? How accurate is Credit Karma? This website provides credit scores based on information from two major credit bureaus: TransUnion and Equifax.
It calculates your score using VantageScore 3.0, which is a credit scoring model similar to FICO. Credit Karma does not incorporate the FICO credit bureau rating, meaning your score may not be 100% accurate. It also updates scores once a week, so there will be a slight delay in finding out your real-time credit score. Still, it’s a good way to track your credit score and get a heads up if anything is off.
What Is New Credit?
When you open a new credit card or get approved for a new loan, this is considered “new credit.” This type of credit makes up about 10 percent of your FICO credit score, meaning that getting even a small new loan can drop your credit score a few points. Luckily, the score will even out or even get a boost over time if you make payments in a timely manner.
Get a Free Debt Assessment Today
Armed with all of this information about credit scores, you’re ready to go out and earn yourself an excellent credit score, which will lower your interest rates and save you money.
Looking for more help paying off debts? Get in touch with us at CreditAnswers. We offer a variety of debt relief products and services. Apply for a free debt assessment today.