How much do you know about credit score? Do you know your own credit score?
On a basic level, a credit score is a number that is assigned to a person based upon their creditworthiness. Your creditworthiness is the risk of a default on a payment you owe. It is important to have a strong credit score to qualify for favorable loans and credit cards.
The most common calculations for credit scores range from 300 to 850, with 300 being the lowest score and 850 the highest. This is also known as your FICO Score, short for the Fair Isaac Corporation. It’s derived from an algorithm that takes into account several factors, like payment history, total debt owed and length of credit. Lenders use this 3-digit number to predict risk and the likelihood you’ll pay on time. The higher your score, the less risk you are and the lower your terms will be.
Every legal United States resident is entitled to a free copy of their own credit report once every year. This is a result of the Fair and Accurate Credit Transactions Act (or FACT Act) enacted in 2003. You can visit AnnualCreditReport.com to access your free report.
Need to improve your credit score? There’s no immediate way to change your credit score, but you can work to increase it over time.
To improve your credit score consider these strategies:
- Pay your bills on time. Late payments can negatively impact your score.
- Consider new credit accounts only when required.
- Pay off debt when you can, the less debt, the lower your debt-to- income ratio.
- Keep your credit card balances as low as possible, and pay off as much as you can each month.
- Don’t apply for multiple credit cards at one time.
- Review your credit report at least annually, and keep an eye out for mistakes and identity theft.
- Report any inaccuracies in your credit report.