The Ultimate Guide to Credit Scores

What’s a credit score? It’s a three digit number ranging from roughly 450 to around 800, and is the measure of a borrower’s credit worthiness. Basically, the higher the number, the better the credit score.

Credit Scores are used by most financial institutions to judge a potential borrower’s credit history. People with higher credit scores have proven that they have received credit in the past and have handled it responsibility, by paying on time and staying within set limits. Conversely, people with lower scores receive them because they have not paid on a timely basis or have gone over their limits.

Financial institutions use credit scores to determine rates to charge borrowers, as well as whether to approve loan requests. Financial institutions generally rate credit reports on an A to E basis. With borrowers having an A rating receiving the best loan rates, while E rated borrowers will either not be approved or pay the highest possible rate. But financial institutions are not the only companies using credit scores. They are also used by insurance companies to set insurance premiums and by some potential employers to determine if they should hire potential applicants.

But one of the most important things that many borrowers don’t realize is that credit scores adjust on a regular basis. So, based on borrowing and repayment habits, borrowers can improve their scores.

Credit Scores are based on five different criteria, each with varying degrees of importance. They five criteria include:

Payment History – how have you paid your expenses in the past as well as the present
How Much Do You Owe – what type of credit, how much is owed, are you over your credit limit.
Length of Credit – how long have you had your accounts and how often do you get new credit
New Accounts – how many new credit accounts have you opened
Types of Accounts – fixed term accounts are generally better than adjustable lines

Now that you know what comprises a credit score and how credit scores our used, it is important that we attain and keep a good credit score, which can eventually mean saving money from lower rates or premiums. To help get a better credit score, here are a few tips:

Be punctual with your payments
Check your credit report on a regular basis
Keep you debt under control
Don’t apply for too many new loans
Payoff accounts, but don’t close them

Getting and keeping a good credit score makes good financial sense and can save borrowers money, by providing them with lower rates on loans and on insurance premiums. To assist in getting and maintaining a good credit score, we have gathered a collection of resources on credit scores: