Credit is an essential part of life these days. It is almost impossible to make major purchases such as buying a car, major appliance or house without it. Individuals and organizations with the best credit ratings have more financing opportunities available to them and are offered lower interest rates than those with poor credit. That is why it’s vital to build and maintain good credit.
How Strong Is Your Credit Score?
Your credit score is a three digit number that is a synthesis of all your credit data. Several factors are taken into account and each one is assigned a weight to determine an overall credit score. The most important factor is payment history, which accounts for about 35% of a credit score. Other factors and their weights include amounts owed on credit cards and loans (30%), length of credit history (15%), types of credit (10%), and new credit accounts and inquiries (10%).
Most credit scores range from 350 to 850. A score above 700 is considered very strong. Individuals with credit scores over 700 will have access to the best financing opportunities at the lowest interest rates. A score below 600 is considered risky for a lender. These individuals and organizations will have less lending options available to them and will pay higher interest rates.
The difference between having a strong credit score and a weak one can save you hundreds, or even thousands, of dollars in interest charges on a major purchase such as a house or car. That is why it’s very important to build a good credit rating and to maintain and monitor your credit score on a consistent basis.
The best way to monitor your credit score is to order your credit report along with the credit score from one or more of three major credit bureaus, which are Experian, Equifax and TransUnion. Once you have determined what your current credit score is, you can work on strengthening it. The most important factor in having a good credit rating is paying all your bills on time. It is also vital to keep your credit balances low on your credit cards and available lines of credit and to have a mixture of credit that includes both revolving credit (i.e. credit card) and installment loans (i.e. car loan). The strength of your credit score is determined by how responsible you are with your lines of credit and your ability to pay your bills on time.