Your credit score depends on your credit and repayment history. Credit is an act you borrow money, and access goods, or services with the promise of paying later. In short, it allows a buyer to buy now and pay later. It allows the buyer to spread the cost of an item over a period and pay the cost. This helps the buyer to pay in smaller quantities. Rather than paying for something in one bulk spending.
What Causes Credit?
There are a few reasons someone would use credit. One reason is that it helps them to spend when they do not have cash available. Unemployment, illness, disability, business crisis, and child care are a few major reasons.
However, with credit, people could develop bad spending habits. They can end up spending too much money at a time. Sometimes, it could be as simple as not knowing what is the max they can spend or what the credit will cover.
What is a Credit Score?
A credit score is a statistical method of determining one’s capability to repay a borrowed amount. Instead, it is the product of a complicated algorithm. Tested and monitored by major credit reporting agencies.
What is a good credit score? The result of your credit score ranges from 300 to 900. A score of 900 means a high credit score, while a score of 300 means the lowest credit score. If you achieve a score below 600, it’s still fair, more so, if you score 700 that is an excellent score. However, attaining these scores does not guarantee you the best interest rates for a loan.
How Are Credit Scores Calculated?
Your credit score considers:
- your credit history,
- all your financial transactions,
- how often do you make late payments,
- your credit repayment history,
- the type of credit that you are applying for,
- whether you have secured or unsecured loans,
- your loan repayment history,
- the amount of credit that you currently have available to you,
- and certain other factors.
Most credit reporting agency includes a view on your debt-to-income ratio. Based on the interest that you are most likely to pay on any charge. For some lenders, having a high revolving balance increases your debt-to-income ratio. Hence, getting a credit score of 700 is ideal. One thing to note as well is that having a smaller credit limit can lower your credit score.
How to check your credit score? All credit report agencies have their unique entity, website, and toll-free number. You can use it to contact credit agencies for your credit report. With these credit agencies, you get access to an individual credit report. Doing so will help you differentiate your credit reports. Credit scores vary among credit agencies. Some companies might omit certain information that affects the credit score.
Finding Your Credit Score and Credit Report
Want to try checking your credit score as a real borrower? Try searching online. There are “free credit score” or “free credit check report” sites you can try. When done, you should see the range where each range starts and stops. If the result shows a number, then you have a credit score. Remember that you need to have a credit score of around 700, so you can have a good credit score. The higher the score, the better, and the lower your credit history, the lower your credit score. The longer your credit history, the better. It’ll only take you a few minutes to get a free credit report.
