Understanding Your Credit Score | Everything You Need To Know About Credit Scores
Understand your credit score and how it can affect your life. Even down to the small every day details that you live with, a credit score is the most important 3 digit number that you should learn about. Keep reading to find out.
Understanding Your Credit Score
Your credit score is a numerical value that is assigned to each person in the United States who has a social security number. This number depicts your credit worthiness and also your credit risk. Banks, lenders, financial institutions, and even landlords use this number to determine if they should lend you money, approve you for a credit card, give you that loan, or let you rent out an apartment. It is used to gauge your future responsibilities in the financial sector and basically is telling them if you are responsible enough to pay back loans or make payments to credit cards.
The credit score was developed by a company called Fair Isaac Inc., and that is why it is commonly called the FICO score which is an acronym for Fair Isaac Corporation. Your score is a 3 digit number and it ranges from 300 to 850, from the lowest to highest. The higher the credit score, the better for you and less risky you are to financial institutions. For example if you had the highest credit score of 850, this shows banks and lenders that you ought to get the best interest rates and terms because you are the most likely to pay them back. Also you will not be denied credit cards because the bank knows you will pay your bills. Landlords will see this and know you are credible enough to rent to because you will make the monthly rent payments without a problem. Because of this, you will be rewarded by banks with the best interest rates and terms on loans because you are the least risky.
On the contrary, if you had a credit score of 300, you will have a very difficult time of even getting approved for loans. In fact, you may feel like you are treated as a second class citizen because nobody will want to take the risk to lend you money or approve you for a credit card. In fact, you will have a hard time living in a good neighborhood that you want to, even if you had the money to pay the rent. The 3-digit number is used as a scale to determine your credit worthiness and how risky you may be.
To understand your credit score, you need to understand how it is determined. Your credit score is made up mostly of your credit history and the length of your credit history. For example, your credit history looks at how often you pay your bills on time and if you are ever late. In the eyes of FICO, if you are able to pay your bills on time and in full for 10 years straight, you deserve a high credit score. This means that you are pretty unlikely to miss a payment in the next 2 years or even more time. The length of your credit history is the example I used above of 10 years. Of course the longer the credit history the better. You have no control over time so sometimes you may just have to wait and keep paying your bills on time.