What Credit Score Is and Why You Should Care About It?

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Did you know that your credit score is one of the most important numbers in your financial life?

Your credit score is a three-digit number that represents your creditworthiness – or how likely you are to repay a loan.

A high credit score means you’re a low-risk borrower, which is good news for lenders. They’re more likely to give you a loan with a low-interest rate.

A low credit score, on the other hand, means you’re a high-risk borrower. Lenders may be reluctant to give you a loan, or they may charge you a higher interest rate.

Your credit score may affect your life in a number of ways. You may start noticing it as you approach major financial milestones.

It’s important to understand what your credit score is and how it works. That way, you can make informed decisions about your financial future.

What is a credit score?

A credit score is a numerical expression of your creditworthiness. It’s based on your credit history, which is a record of your borrowing and repayment activity.

Your credit score is important because it’s used by lenders to decide whether to give you a loan and, if so, at what interest rate.

The average credit score is 711.

A credit score over 740 to 799 is considered “very good” and above 800 is considered “exceptional”.

Scores between 670 and 739 are considered “good”.

Scores between 580 and 669 are considered “fair”.

Anything below 580 is considered “poor”.

These are FICO credit score ranges. There are also other credit scoring ranges used by lenders. however, the FICO score is the most widely used.

What factors influence your credit score?

There are five main factors that influence your credit score:

  • Payment history: This is the biggest factor. It includes whether you make your payments on time and how often you miss payments.
  • Credit utilization: This is the second biggest factor. It measures how much of your available credit you’re using.
  • Credit history: This is the third biggest factor. It looks at the length of your credit history and how often you apply for new credit.
  • Credit mix: The fourth biggest factor. It measures the variety of credit products you have, such as credit cards, mortgages, and auto loans.
  • New credit: The fifth biggest factor. It measures how often you’ve applied for new credit recently.

Why is your credit score important?

If you ever will need to borrow money – for a car loan, a mortgage, or even a credit card – your credit score will be one of the most important factors in deciding whether you’re approved and, if so, at what interest rate.

A high credit score will allow you to borrow money at a low-interest rate. This can save you thousands of dollars over the life of a loan.

A low credit score may result in you being denied a loan entirely (check out Bad Credit Loans Guaranteed Approval). Or, if you’re approved, you may be given a loan with a high-interest rate. This can end up costing you a lot of money in the long run.

Your credit score can also affect your insurance rates. Many insurers use credit scores to help set rates.

A bad credit score may also prevent you from getting a job. Some employers pull credit reports as part of the background check process.

Conclusion

As you can see, your credit score is important. It’s a key factor in borrowing money and in your financial future. If you want your financial future to be bright, it’s important to understand your credit score and take steps to improve it.

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