Having a great credit score can mean lower credit card and loan interest rates, the ability to acquire new credit, and even better job opportunities. A good score can save you money over time and provide you a better lifestyle. But what do they mean?
Credit scores show your financial responsibility and accountability. Banks, credit card companies, utility companies, employers, and land lords want to see a good score so they know that you are responsible with your money. Other factors like income and work history will play into a company’s decision to extend credit, but you may still be denied if your credit score is low.
There are a few things you should be able to understand about your credit score.
Negative information on your credit report can stay there for up 7 years and bankruptcies can stay for up to 10 years. Even if you’ve paid off a debt, the information usually remains. However, once a debt is paid, the creditor doesn’t have much reason to care whether the information is on your report or not so disputing can result in the information being removed, raising your score.
What do credit score numbers mean?
750 – 850: A- Excellent
700 – 749: B- Very Good
660 – 699: C- Average
580 – 659: D- Poor
300 – 579: F- Worst
Your history of payments (how frequently or infrequently and the amount) along with the overall amount of your debt are the two biggest factors to determining your credit score. Revolving credit debt (credit cards) account for more points against you than personal debt (loans).
Your credit score includes:
- The number of times you’ve paid late and the amount of time they were late (30, 60, 90 days or more)
- The type of accounts you have and how long you’ve had them
- Your total amount of debt
- Any public records like collections or lawsuits
By law, you are entitled to a free copy of your credit report each year from the three credit reporting agencies. Although in most cases, this report does not include your credit score, that’s typically an additional fee.
You can maintain or improve your credit score by keeping your accounts open and paying them on time. The longer you’re in good standing with your accounts, the better your score.
Surprisingly, closing your accounts can have a negative impact on your score, especially if the account is paid in full and always on time. If you no longer need a credit card, pay it off but don’t close it. The available credit line with no balance will improve your score.
How do you improve a low score?
By making a few simple adjustments, your score can start to increase within just a few months.
If you do have negative accounts on your credit, the best thing you can do is start adding as many positive accounts and paying down as much debt as possible.
- Pay your credit card, loan, and utility bills on time.
- Keep your accounts open and in good standing
- Pay off any collections then dispute them and have them removed
It’s a good idea to take a look at your credit report at least once a year so you can fix any mistakes by writing a letter to the credit bureau.
Something to be aware of, the higher your credit score the more impact a late payment will have on it so keep your payments current.
Improving your score is not impossible; it just takes some effort, time, and persistence to improve it. Once you do, keep up with your payments and review your report annually for any mistakes.