A credit score is a numerical value ranging from 300 to 850 that is derived from various aspects of your credit history. The higher the number, the better your credit rating. Several organizations produce credit scores, but the two most important and widely used are FICO and VantageScore.
FICO score vs. VantageScore
The Fair Isaac Corp. developed the FICO system, and 90 percent of top lenders in the United States use it to determine a potential borrower’s eligibility for credit. FICO scores range from very poor to exceptional. VantageScore is a product of Equifax, Experian and TransUnion, and was created in 2006 as a viable alternative to FICO. As with FICO scores, the VantageScore ranges from 300 to 850 and is divided into five categories:
|300 – 579||Poor||300 – 549||Very poor|
|580 – 669||Fair||550 – 649||Poor|
|670 – 739||Good||650 – 699||Fair|
|740 – 799||Very good||700 – 749||Good|
|800 – 850||Exceptional||750 – 850||Excellent|
How to improve your credit score
Because FICO is the most commonly used credit score, it’s the best one to focus on if you are thinking of taking out a loan. There are several steps to take as you work toward improving your eligibility for credit.
- Find out your current score. Many financial organizations allow access to your credit history and credit score as a perk. Most credit card issuers offer free FICO scores to their customers. Discover offers free FICO scores to anybody, regardless of whether they are customers with an eligible Discover card. Experian, one of the main credit-reporting agencies, offers a subscription-based service for access to various credit scores and online support.
- Pay your bills on time. Late payments, even if they are only a few days late, are incredibly damaging to your credit score. Set reminders, and pay bills as soon as they are due.
- Take control of your credit cards. A major component of your credit score is the amount of revolving credit you are using compared with the amount you have available. Pay down your credit cards, and keep the balances as low as possible. Use no more than 30 percent of your available credit. Also, it’s better to consolidate your credit card balances. Owing an amount on one card is better for your credit rating than owing the same amount across two or three cards. Pay off as many balances as possible, and then use only one card for future transactions.
Your credit score is critical
A good credit score is essential for proving your eligibility for a loan. Lenders use your score to evaluate how much credit they are prepared to offer, as well as the rates, down payments and other terms. If you need to improve your score, start working on making changes to your lifestyle immediately. It could take a while for your efforts to be reflected in your credit report and score.