A credit score is a 3 digit number (typically between 300 and 900) that indicates the overall health of a persons’ credit and their ability to repay debt. Information from a credit report, which is a summary of a persons’ financial and credit history, is used to calculate the actual number. The higher the score the better the credit rating.
Credit Unions, Banks and other lenders use a credit score when deciding to approve a loan application, the amount of money to loan and the interest rate they will charge.
Most people at some point in their lives will need to borrow money to make a major purchase, such as a home or a car. Rather than having to hand over all of the money up front, the use of credit spreads the burden of the cost over a longer period of time.
7 Easy Steps to Maintain a Good Credit Score
- Adhere to the terms of your credit agreement by making your payments on time.
- Don’t miss payments.
- Do not exceed pre-authorized limits.
- Keep your credit balances as low as possible. The higher your balance is in relation to your credit limit, the worse your credit score will be.
- Manage your debt. Having too much debt will negatively impact your credit score.
- Restrict the number of new credit applications you make. Every time you apply for credit, the lender makes a credit inquiry resulting in a lower credit score.
- Be aware of your creditworthiness. If you don’t know your credit score request a free Credit Report. Ensure the information is accurate, and if you note an error in your credit report, dispute the mistake with the Credit Bureau. Credit Reporting Agency’s must investigate a disputed items.
Building and maintain a good credit score will have a dramatic impact on your financial life. Although you may still be approved for a loan or credit card with a low credit score, the interest rate charged could be significantly higher, costing more money in the long run.