Credit scores are similar to report cards. You get a three-digit grade on a scale starting from 300, which goes up to 850. The score reflects your creditworthiness in the eyes of banks, insurance companies, potential lenders and even to a few employers. A high credit score is a preferable one.
You can obtain your own credit report if you apply to three important reporting agencies: TransUnon, Equifax and Experian. It is free once every year if you apply through the annualcreditreport.com website.
What is a good credit score?
A good credit score is established by creditors. Here is what your credit score means and how it affects your personal finances:
- Credit score between 300 and 580: Credit will be denied to you or given at expensive interest rates
- Credit score between 581 and 650: Credit will be given at higher interest rates
- Credit score between 650 and 710: You will be given credit at moderate interest rates
- Credit score between 711 and 750: Credit will be given to you at competitive interest rates
- Credit score of 751 and above: You will be offered the most competitive and cheapest available market interest rates.
If you have a credit score of 550, you could be charged interest rates approximately five percentage points more than one with 750. It could mean paying thousands of dollars more for a $20,000 automobile loan. For a mortgage, it could turn out to be $1,000 dollars more!
Fast boost your credit scores
Your credit scores can be improved as long as there are no black marks on your credit report – like foreclosure or bankruptcy. You can increase your score in as little as one month.
Do know that there is no common formula to increase your score by a few points. There are many variables to make a common formula. However, it is not difficult to jack up your score.
Review closely the credit reports from the three big reporting agencies
If there are any errors, clear them up immediately. They could be late payments or incorrect credit limits. There could be collection items mistakenly foisted on you. You should obtain your free credit reports precisely for the task.
Pay bills on time
Negativity on credit scores is mostly due to delinquencies. You must pay all bills on time and must be organized. If you are not confident of yourself, set bills for automatic withdrawal. In case your bills are overdue, make adjustments in your budget to pay them off. You should not let you account reach a collections agency. If it happens, it will be a big blemish on your record.
Pay your credit card balance
You should try to reduce your overall debt to move up your credit score. However, in case of insufficient funds, you can take loans from a friend or a family member to move the debt from your credit report.
Do not close credit card accounts you are not using
When you cancel a card, you actually decrease your credit score. It is a better strategy to utilize old credit cards. A good credit score can be achieved by having lengthier credit histories, and you can use your old credit cards for it.
Do not max your credit cards
Always keep your credit card balances below 30 percent of the credit limit. Maintain it even if you pay the amount in full every month. To give an example, if your credit limit is $3,000, your balance should not cross $900.
It is vital that you keep your credit scores high. A good credit score means saving a lot of money during the credit repay period. Be a judicious spender and pay your bills on time.