Understanding your credit score, how it is calculated and effects you when applying for a loan is very important. A credit score, also known as a FICO (Fair Isaac and Company) score, is an analytical number that shows your worthiness of receiving credit: how much risk is a lender taking by giving you money. Your have three FICO scores making up your credit score and all may vary from each other. The scores are based on information housed from different credit bureaus: Equifax, Experian and TransUnion.
All lenders will use the credit score differently when making a decision to lend to a consumer or not. Some combine it with their own analytics and some disregard it altogether by offering higher interest rates and shorter terms to enable someone with a lower score to still receive financial assistance. Knowing your credit score and how to improve it will make getting a loan easier. Not to mention you will receive longer loan terms and smaller interest rates with a higher score.
How can I improve my credit score?
Improving your score can’t be done overnight. It takes consistent effort throughout each credit transaction. However, there are steps you can take right now that will put you on the right track to higher credit score.
- Reduce the amount you owe by paying frequently and on time. This will improve your score and also lower the balance leaving you in in debt for a shorter period.
- Know your current credit score. Going directly to the credit bureaus to find this score is the best way to go about finding your FICO score.
- If you are behind on payments get caught up and stay caught up.
- Only open up credit cards as needed and pay the off quickly.
Tips, tricks and habits for improving your credit score can vary by each person and the length of their credit history. For example, if you have only had credit for a short time it is recommended that you do not open new accounts quickly as this will lower your account age and put you at risk of not paying all of your payments on time which will then do the opposite of improving upon your score. However, if you are re-establishing credit than opening new accounts and paying them off will increase your score. Have a financial plan and pay on time and off frequently and you can’t go wrong.
Begin your journey of improving your credit score by visiting the bureaus below: