What Your Credit Score Range Really Means
Have you recently been told your credit score, but you’re still trying to figure out what it means? You’re not alone. In this article we’ll look at what your credit score range really means. We’ll also look at what is considered a good credit score and 5 factors that influence your credit score.
What is Your Credit Score and Why Does it Matter?
Your credit score is a three digit number assigned to you, the borrower, by the major credit bureaus, Equifax and TransUnion. It’s used by lenders to evaluate your creditworthiness. Credit scores range from 300 to 900. The higher your credit score, the more favourable you are in the eyes of the lender.
Your credit score matters because it enables you to borrow money with favourable terms. The better your credit score, the more favourable the terms will be. If your credit score leaves room for improvement, you can expect to pay a higher interest rate and possibly additional fees to borrow money.
What is Considered a Good Credit Score?
Generally speaking, you’re considered to have a good credit score if it’s at least 680. Although keep in mind that there are different types of credit scores. It’s also important to note that the credit score a lender sees on its end usually differs from the one you’re able to see as a consumer.
Furthermore, your credit scores between the two credit bureaus will almost always be different. You might have a higher credit score with Equifax than Transunion or vice-versa.
The 5 Factors that Influence Your Credit Score
The credit bureaus don’t just pull your credit score out of thin air. There are five main factors used to calculate your credit score.
This is based on the payments you’ve made (or haven’t made) to lenders. This looks at how good you are at making your payments on time. If you’re looking to improve your credit score, always aim to make at least the minimum payment on time.
This looks at how much of your available credit that you’re using. For example, if you have a credit card with a credit limit of $5,000 and an outstanding balance of $2,500, you’d be using 50 percent of your available credit. Aim to be using 35 percent of your available credit at any one time.
Credit History Length
The longer you have a credit account open and in good standing, the better it is for your overall credit history health. For that reason, if you’ve had a credit card open for many years, you’ll want to still keep it open, as closing it could hurt your credit score.
Number of Credit Inquires
Each time your credit report is reviewed by a potential lender, your credit score may be impacted. If you apply for too much credit within a short period of time, your credit score may be further impacted. It’s important to only apply for credit which you intend to use. Otherwise, you could be lowering you credit score for nothing.
Having a mix of credit can help your credit score. Most lenders see you a responsible borrower if you’re able to handle a variety of credit.
Writer: Sean Cooper
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