Credit scores influence many aspects of your life: whether you get a loan or credit card, what interest rate you pay, sometimes whether you get an apartment you want. A higher credit score can give you access to more credit products — and
at lower interest rates. Borrowers with scores above 750 or so frequently have many options, including the ability to qualify for 0% financing on cars and for credit cards with 0% introductory interest rates. It pays to know how credit scores
work and what the credit score ranges are.
A credit score is a three-digit number, usually on a scale of 300 to 850, that estimates how likely you are to repay borrowed money and pay bills. Credit scores are calculated from information about your credit accounts. That data is gathered by
credit-reporting agencies, also called credit bureaus, and compiled into your credit reports. The three largest bureaus are Equifax, Experian and TransUnion.
The highest credit score you can get is 850, although there's not much difference between a "perfect" score and an excellent score when it comes to the rates and products you can qualify for. In other words: Don't stress over trying to achieve an 850
score, especially because scores tend to fluctuate frequently.
Creditors set their own standards for what scores they'll accept, but these are general guidelines:
In addition to your credit score, factors like your income and other debts may play a role in creditors' decisions about whether to approve your application.
Two companies dominate credit scoring. The FICO score is the most widely known score. Its main competitor is the VantageScore. Generally, they both use a credit score range of 300 to 850. Each company has several different versions of its scoring
formula, too. The scoring models used most often are VantageScore 3.0 and FICO 8. FICO and VantageScore pull from the same data, weighting the information slightly differently. They tend to move in tandem: If you have an excellent VantageScore,
your FICO is likely to be high as well.
A score is a snapshot, and the number can vary each time you check it. Your score can vary depending on which credit bureau supplied the credit report data used to generate it, or even when the bureau supplied it. Not every creditor sends account activity
to all three bureaus, so your credit report from each one is unique.
The two main credit scoring models, FICO and VantageScore, consider much the same factors but weight them somewhat differently. For both scoring models, the two things that matter most are:
Much less weight goes to these factors, but they're still worth watching:
There are some things that are not included in credit score calculations, and these mostly have to do with demographic characteristics. For example, your race or ethnicity, sex, marital status or age aren’t part of the calculation. Neither
is your employment history — which can include things like your salary, title or employer — nor where you live.
What does your credit score measure? In one word: creditworthiness. But what does this actually mean? Your credit score is an attempt to predict your financial behaviors. That's why factors that go into your score also point out reliable ways you can
build up your score:
There are several ways to build credit when you're just starting out, and ways to bump up your score once it's established. Doing things like making payments to your credit card balances a few times throughout the month, disputing errors on your credit
reports, or asking for higher credit limits can elevate your score.
You can check your own credit — it doesn't hurt your score — and know what the lender is likely to see.
You can get a free credit score from a personal finance website such as NerdWallet, which offers a TransUnion VantageScore 3.0. It's important to use the same score every time you check. Doing otherwise is like trying to monitor your weight on different
scales — or possibly switching between pounds and kilograms. So, pick a score and get a game plan to monitor your credit. Changes measured by one score will likely be reflected in the others. Remember that, like weight, scores fluctuate.
As long as you keep it in a healthy range, those variations won’t have an impact on your financial well-being.
(Partially reprinted from nerdwallet.com)
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