What’s a Credit Score?
Ultimately, a credit score reveals the information in your credit report. This number is an overview of your credit history. A credit score allows creditors to determine how likely it is that you will make on time payments. Creditors also use a credit score to grant you credit, to decide what terms to offer you, and to determine the interest rate you pay.
What is Involved When Calculating Your Credit Score?
There are a number of factors that are taken into account when calculating your credit score such as, the amount of accounts you have, the type of account it is (credit cards, mortgages, auto loans), whether or not you make on time payments, how much outstanding debt you have, how old your accounts are, and how much of your available credit you are using.
Is There a Difference Between a FICO Score and a VantageScore?
Yes. Your FICO score is a result of the information in your credit report. This number, usually between 350-850, measures how risky a borrower is. So, the higher your FICO score is, the less of a risk you are to creditors. A VantageScore is developed by the three credit bureaus: Experian, TransUnion, and Equifax. This creates a better forecast of your credit, even if you have little credit history. It also eliminates the need for creditors to manually review your credit information. VantageScores range from 501-990, and again, the higher your score, the less of a risk you are to creditors. A pro of a VantageScore is as long as the three credit bureaus have the same credit information, then all three scores will be the same. If the credit bureaus have different scores, then that is an indication of discrepancies in your report.
How do You Maintain a Good Credit Score?
There are a number of things you must do to maintain a good credit score:
- Peruse your credit report to make sure that it is accurate. There are many websites that claim they will give you your credit report for free, but then end up asking you for payment information. To avoid scams like this, go to annualcreditreport.com. This website is the only one that has the authority to give you your credit report for free.
- Pay all of your bills on time. This is the most important step to take to make sure you have a good credit score.
- Be familiar with the factors that determine your credit score such as, paying bills on time, having outstanding debt, the length of your credit history, if you’ve applied for a new line of credit, and the type of credit accounts you have and how many there are.
- Be informed about the legal steps you can take to fix errors in your report. A good source is The Federal Trade Commission’s Building a Better Credit Report
- Be mindful of credit repair scams. You can use The Federal Trade Commission’s Credit Repair: How to Help Yourself to maintain and improve creditworthiness. It’s like they always say, “When you want something done right, you gotta do it yourself.”
Your creditworthiness solely depends on your credit score. Not maintaining a good credit score can make you vulnerable to high interest rates and disqualify you from getting a new loan. It can also ruin your chances of getting that new job or apartment. Always remember that the higher your credit score, the less risky you will look to creditors.