In the world of finance, information is vital. To have long-term financial prosperity, one must gather the facts and decide the best use of their cash and credit resources.
While several factors make up your credit score, having a general understanding of the actions that affect it will keep you on the right path and prevent damage to your credit history. Here are some key notes to summarize what this article will cover below:
– Companies use credit scores to make lending decisions
– Your credit score can fluctuate depending on your financial activities
– There are ways to dispute errors on your credit report to improve your credit score
The credit score explained
Lenders calculate your credit score based on the information found in your credit report. They use credit scores to decide whether or not to offer you a mortgage, credit card, auto loan, or other lending product. Scores can also affect the interest rate and credit limit you receive.
By law, you can request a free credit report from each of the three major credit reporting agencies (CRAs) annually. On the reports from Equifax, Experian, and TransUnion, there are crucial details that provide your likelihood to maintain a loan. Therefore, keeping your credit reports free from errors is just as important as having a good credit score and history.
If you need to dispute an error, contact both the credit reporting agency and the lender that provided the information.
Why do you need a good credit score?
Having good or excellent credit can provide significant savings over your lifetime. Seeing things from a lender’s perspective, it makes sense to increase interest fees for higher-risk loans. With the payback uncertain, charging more upfront in interest ensures the highest potential to recoup funds.
A high score means lower interest rates, better terms, and more perks, including reward points and airline amenities.
How often is it measured?
Your credit score fluctuates depending on the information in your credit reports. Equifax, Experian, and TransUnion typically receive updated data from lenders every 30-45 days.
Best practices to increase your credit score
Scores range between 300 and 850. A credit score of 700 or above is generally considered good. A score of 800 or above qualifies as excellent. Most consumers have credit scores that fall between 600 and 750. Developing good credit habits, and sticking to them, is the best way to build your credit score. Here are some steps you should take to achieve this goal:
1. Pay all bills on time
2. Keep your debt-to-credit ratio low
3. Space out loan applications
4. Monitor your credit reports
By following the guidelines within this article, you can improve your credit score and achieve financial stability. Remember, a good credit score is the foundation of a healthy financial future.
Additional financial resources
Achieva Credit Union offers free online courses from certified financial counselors. Visit www.achievacu.com/events to register or to see class options.
Need more financial content? Continue following the Achieva Life Blog for additional budgeting and lifestyle articles.