Many people today don’t understand much about credit ratings and credit scores. Achieving a good credit score can be very hard to do, because the steps required are counterintuitive to many individuals. It requires only spending money that you know you can pay off, and only using your credit cards in specific ways.
When you are trying to get a good credit score you need to buy things with your credit cards, but then pay the balance or at least the minimum payment every month when the bill is due. If you don’t do this, you will find your score plummeting. You also want to maintain a steady line of credit—a card you have had open for a long time, or a loan you are steadily paying off. You want to show that you can pay off your debts and loans, so you need at least a basic amount of credit use to show that you are “creditworthy.”
Your credit score is based on a Fair Isaac Corporation (FICO) score. This is made up of your payment history, the amount of credit you use (so you don’t want to use too little or too much), the length of credit history, the different types of credit you have (store cards, credit cards, loans, etc.), and how many times it has been looked at recently. You can get your credit report free once a year. It is important to look at your report to make sure there are no mistakes or false pieces of information therein, as that will affect your score. Your score is also tabulated by the three main credit reporting companies: Experian, TransUnion, and Equifax. Their scores are all calculated a little differently, but you want your score to fall in the “excellent” range. Walter Burch, Editor of Creditlearningcenter.com, states “Overall, credit scores generally range between 300-900. The average credit score in the US is about 678. However, he also says, “The good news is, no matter what your credit score is, you can always improve it.” You can get your credit report free once a year. It is important to look at your report to make sure there are no mistakes or false pieces of information therein, as that will affect your score.
Your credit score is incredibly important when you try to get a loan, buy a home, or purchase a car. Your credit score can be the determining factor even in renting furniture! Fortunately, there are many online companies, who can help you find your own credit score, so you can better make decisions in the future, repairing your credit and moving closer to your financial goals.