How to Read My Credit Score?

When you’re trying to understand the world of credit, you may have questions such as “how to read my credit score?” Your credit score is a three-digit number that’s generated from information contained in your credit report. This number gives potential creditors at a glance a quick assessment of how likely you are to repay borrowed money. The higher your credit score, the better your credit is considered to be.

Credit Score Ranges

While there are different models of credit scores, the most common models use scores that range from 300 to 850. If your score is above 800, it’s considered exceptional. Scores from 740 to 799 are very good, while 670 to 739 are good. If your score is between 580 and 669, it’s fair, and below 580 is poor.

Different creditors have different policies on what credit scores are good enough to qualify you to borrow money. Whatever your credit score, higher scores are always better. You may be approved for credit if you have less-than-perfect credit, but you may end up paying high interest rates.

Factors Used in Computing Credit Scores

Your credit score for each credit bureau is based on a combination of factors. These factors include:

  • Payment history
  • Total amount you owe
  • Types of credit
  • Length of credit history
  • Number of recent inquiries

The importance of each of these factors can vary between different scoring models. You don’t have just one credit score; you actually have several different credit scores. Each of the three main credit bureaus, Experian, Equifax and TranUnion, calculates a score based on the information that’s been reported to them. FICO and Vantage also provide credit scores for specialized purposes such as auto loans or insurance.

What Causes a Bad Credit Score?

If your credit score is low, it could be because you’ve had some big problems in the past such as bankruptcy or paying your bills more than 30 days late. While experiencing bankruptcy or having accounts end up in collections can significantly impact your score, even having just one payment go more than 30 days late can cause your score to drop. Having a large credit utilization rate or having too many inquiries for new credit in a short amount of time are other factors that can cause your score to drop.

You may also have a low credit score if you’ve never borrowed money before. Having no credit history makes you a bigger risk to potential lenders.

Bringing Up Your Credit Score

If your credit score isn’t great, do what you can to bring it up. Pay your bills on time and avoid borrowing more than 30 percent of your credit line on a credit card. Make sure that all of the information on your credit report is correct. Finding errors is surprisingly common, and any inaccuracies should be reported so they can be removed so that they don’t continue to hurt your credit score.

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