What Is a Credit Score?
We’re breaking down the meaning of the word “credit score” and helping you understand the importance of having a good one. We all know you need it for the most important things in life, but do any of us really understand why?
What is a Credit Score Exactly?
Yes, unfortunately a three digit number can make or break your future when it comes to buying a home, car or even renting an apartment. This simple, yet complicated number shows how likely you are to pay back debt in your name. Financial institutions use it to decide whether or not they trust you enough to approve you for a loan or credit card.
Your credit score is based off of your credit report. This shows your payment history, existing debt and previous debt. Checking your credit score is easy and simple. The three main credit bureau’s TransUnion, Equifax and Experian can provide you with your credit report for free 3 times a year. It’s important to check your credit score to ensure it’s in good standing, if not, you can take action in improving your score so future large purchases are easier and hassle free.
Why Your Credit Score is Important
Unless you’re rolling in the dough and able to pay all cash, you are going to need a loan of some sort at some point in your life to buy a car or home. Financial institutes use your credit score to determine how likely you are to pay back the money they lend you.
Impact Credit Scores Have On You
Your credit score will also be the final say in what rate you receive for any and all loans you receive. The higher your score, the lower your interest rate. Your credit score doesn’t just affect your ability to be approved for loans, it can affect things you may not realize such as:
Renting an apartment
Cell phone plan
The Components of a Credit Score
So how is a credit score calculated? What rules are there to help you create and maintain a good score? There are 5 factors total that credit bureau’s take into account when determining your credit worthiness and some are more important than others.
Payment history – Affects your score by 35%
Amounts owed (debt) – Affects your score by 30%
Length of credit history – Affects your score by 15%
Credit mix – Affects your score by 10%
New credit – Affects your score by 10%
If you have a credit score of 800+ you’re likely going to get the best rate that a financial institute offers. The score ranks go as followed:
800+ = Excellent
799-750 = Very good
750-700 = Good
700-650 = Fair
650-560 = Bad
560-300 = Very bad
It’s important to keep your score high and maintain it so you never have to worry about being denied loans or credit cards for when you actually need them. If you notice your score is low, take action in trying to improve it. At Niagara Regional FCU we offer many financial loan services such as VISA credit cards with low interest rates, auto loans, mortgage loans, and personal loans. Apply for a loan today to see if you qualify!