Like it or not, your credit score is an all-important number. During your life, the ability to use credit for key purchases can greatly impact your quality of life. Your credit score is an amalgam of your credit and debt habits based on your credit report that’s curated by the credit bureaus. Potential creditors, landlords, insurers, and utility providers pay to access this data (with your consent) to inform decisions about whether to loan you money, issue credit lines, or offer services to you. Here’s why your credit score is so important and what you can do to better it.
What Exactly Is A Credit Score?
While your credit report is a comprehensive dossier of your debt and credit behavior, your credit score is a single number used to judge your creditworthiness. This score is calculated by any number of companies that offer score calculations. The name you most likely know is FICO, but there are lots of scores and score providers.
The credit score is a calculation based on the info on your credit report. The report and the score are two different things. Because each score is calculated differently, your score will change based on the calculator, which agency the data comes from, and the type of calculation. Some scores are strictly run for mortgages and auto loans, etc.
What Is A Good Credit Score?
A good credit score starts in the high 600s or low 700s. A score above 800 is considered excellent. Depending on the type of credit or service you’re applying for, the acceptable range of credit scores will differ. For example, the higher your score, the lower the interest rate you can get on a loan like a mortgage, car loan, or lease.
The current average credit score is 695 but the averages scale by age. Typically, older American have better credit scores with those under 30 having the worst scores and those over 70 having the best scores. Not surprisingly, those with greater income have better credit scores, on average. In North Carolina, the average credit score is 600 and climbing.
What Determines Your Credit Score?
Your credit score is a measurement of factors in five broad categories:
- Payment history determines roughly 35% of your credit score and reflects whether you pay your bills on time that report monthly to the credit bureaus.
- How much debt you owe compared to your available credit determines about 30% of your credit score.
- Age of credit drives about 15% of your credit score and is simply an average of all your revolving lines of credit by history (i.e., how long they’ve been open).
- Your mix of credit mix determines roughly 10% of your credit score. This is the percentage of revolving versus installment (i.e., credit cards versus auto loans and mortgages).
- Having recently approved credit affects about 10% of your score. Opening new accounts now and then can improve this facet, but can also drag down other aspects.
Why You Need A Good Credit Score
A good credit score impacts what you will pay for goods and services. Even if you don’t like the idea of debt and credit, it’s inevitable. You may plan on paying cash for everything in your life, but that’s not possible. For instance, applying for natural gas service or auto insurance necessitates a credit check and the better your score, the lower you will pay.
You can have no debt and pay all your bills on time, but if you don’t have a solid credit history and good credit score, you may still pay more for necessary services. If you want to buy a car or home one day, even if you’re not ready for that step right now, a good credit score is necessary to be approved and determines how much interest you will pay.
If you’re just coming out of bankruptcy, you got a fresh financial start from your debt, but now is the time to leverage your clean slate for a brighter tomorrow. After you get your bankruptcy discharge, rebuilding your credit to get a better score should be your next step. Check out Credit Score Keys now to see how to improve your score.