Wondering how to know your credit score? If yea, you’re reading the right article. In its simplest form, you use a credit score as a barometer to measure your financial health and predict your likelihood of getting a personal or business loan or credit card approval from a lender.
Read this article till the end to learn more about your credit score, understand the metrics for calculating credit scores, and discover how your credit score affects the credit cards and loans you qualify for.
To Know Your Credit Score:
- Understand What A Credit Score Is
- Know The Types of Credit Scores
- Grasp How Credit Bureaus Calculate Your Credit Score
- Learn How to Check Your Credit Score
- Understand How Your Credit Score Affects The Credit Cards and Loans You Qualify For
- Know Factors That Influence Your Credit Score
- Learn What Hurts Your Credit Score
- Understand The Benefits of Checking Your Credit Score
Happy? Let’s dig deeper.
1. Understand What A Credit Score Is
To know your credit score, understand that it is any three-digit value from 300 to 850 that reveals your creditworthiness. In other words, it informs lenders of your credit risk and capacity to repay a loan or credit card balance. Credit history, payment history, credit utilization, new credit, and credit variety are factors that influence your credit score.
2. Know The Types of Credit Scores
To understand your credit score, know the types of credit scoring models available. Check the FICO or VantageScore scoring model to know your credit score. The two scoring models (FICO and VantageScore) range from 300 to 850 and use your payment history among others to calculate your credit score. FICO differs from VantageScore in how it ranks and weighs your payment history, amounts you owe, the numbers it assigns for your credit score, and your point value.
Check your credit score from FICO and VantageScore scoring models below:
FICO
- Poor: Less than 580
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800+
VantageScore
- Very Poor: 300-600
- Poor: 601-657
- Fair: 658-719
- Good: 720-780
- Excellent: 781-850
Wondering which scoring model to check so you can know your credit score? Go over both FICO and VantageScore scores to have an insight into what your lender sees when you apply for a loan or credit card—remember, you don’t know your lender’s preference.
3. Grasp How Credit Bureaus Calculate Your Credit Score
To see your credit score, grasp how FICO and VantageScore calculate it. Pay attention to your payment history, credit mix, amounts you owe to understand how FICO and VantageScore calculate your credit score. Check below how the firms rank, weigh, and calculate your credit score:
FICO Credit Score
- Credit utilization. This points to the how much of your available credit you’re using—the ratio of the amount you owe to your credit limit times 100 percent. It covers 30% of your credit score.
- Payment history. Your payment history tells the lender your reliability in repaying loans. It covers 35% of your credit score and it relates with how early you make your past credit payments.
- Longevity of credit history. This factor focuses on your record of how you managed your debts repayments. It covers 15% of your credit score.
- New credit. This factor affects how frequently you open new accounts and it amounts to 10% of your credit rating.
- Credit variety. Think of this factor as the variations of the credit products you incur, such as credit cards, mortgage loans, and so on.
VantageScore
- The most important factor is your payment history.
- Other important factors are your credit utilization and longevity of credit.
- Total balance or debt also influences your VantageScore credit rating.
- Recent inquiries, credit behavior, and available credit are the least factors for VantageScore.
4. Learn How to Check Your Credit Score
To know your credit score, learn how to check it. Don’t depend on Experian, Equifax, or TransUnion to check your credit score because each of the three credit bureaus allows you to access your credit score for free once a year. Choose any of the following alternatives to know your credit score:
- Check free online credit scoring platforms. Visit NerdWallet, Credit Karma, Credit Sesame, etc., to check your credit score for free. Sign up for the platforms’ email lists to get weekly or monthly reports of your credit.
- Ask your credit card issuer. Check if your card issuer allows you to check your credit score and track what results from a recent change in your credit reports.
- Visit a nonprofit credit counselor. Get help to create a budget, plan to repay your loans, know your credit score, and so on.
5. Understand How Your Credit Score Affects The Credit Cards and Loans You Qualify For
To know the value of your credit score, understand its impact on the credit cards and loans you qualify for. The higher your credit score, the better it is for you to qualify for different loans and credit cards that offer better interest rates and favorable repayment terms. Apply for premium credit cards, such as a Chase Sapphire Reserve with an excellent credit score.
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6. Know Factors That Influence Your Credit Score
To understand your credit score, know the factors that influence it, including credit utilization rate, new credit, credit variety, payment history, and credit history. Check your credit scoring model—FICO or VantageScore—to know how each of the factors affects your credit score.
7. Learn What Hurts Your Credit Score
To know your credit score, master what injures it. Increase your credit score to qualify for loans and different credit cards. To know what affects your credit score, keep an eye on the following factors:
- Negative data on your credit report. Bankruptcy (when you can’t meet your financial obligations to your creditors), foreclosure (when you lose your property to a lender because you default payments), or repossession (similar to foreclose) impacts your credit score negatively. Avoid it.
- Late payments. Meet your financial obligations on time. Don’t miss or make late payments to build your credit score.
Higher credit utilization rate. Control your debt balances and keep the percentage of your debt to credit limit ratio less than 30%. - Forceful closure of a credit card account. Don’t close your credit card account even if you have cleared your debt. Let lenders see how responsibly you have handled different credit accounts over time.
- Nonchalance towards your credit report. Don’t ignore your credit report. Always be aware of your financial health and what recent change has occurred in your report.
- Consistent chargeoffs. A chargeoff happens when you fail to pay back your credit over a long period of time, and your lender gives up. Chargeoffs affect your credit negatively.
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8. Understand The Benefits of Checking Your Credit Score
To know your credit score, review it frequently. Check your credit score often to:
- Know your financial health. Check your credit score to know your financial health and when to apply for loans to make major purchases like a home or a car.
- Increase your score and qualify for better interest rates. Know your credit score to discover your present credit rating and qualify for better interest rates.
- Discover fraudulent activities. Check your credit score to discover fraudulent activities. File a dispute with your card issuer if you observe an unexplainable increase in your credit usage that didn’t originate from you.
Recap
To know your credit score, understand what a credit score is, know the types of credit scores, and
grasp how credit bureaus calculate your credit score. Learn how to check your credit score, understand how your credit score affects the credit cards and loans you qualify for, and know factors that influence your credit score. Learn what affects your credit score and understand the benefits of checking your credit.
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