What is Credit Score and How to Check It?
Credit Score is a number between 300 and 850. This number shows how likely you are to repay the money that you are requesting to borrow.
The higher the score the more reliable you appear to a potential lender. Any score higher than 800 is classed as excellent, 650 or above is considered good and 649 or below is deemed as very poor. Lenders use your credit score to judge whether you are going to pay your repayments back on time.
Credit scores are calculated based on several factors:
Length of credit history
Number of open accounts
Total levels of debt
Types of credit
The Fair Isaac Corporation, known as the FICO, created credit score and is one of the most popular systems to be used. There are other credit scoring systems that exist for example Experian and Equifax are two large systems that are popular within the finance industry.
How Does Credit Score Affect Your Finance?
Your credit score is very important and can dramatically affect your financial life. It plays a key role in lenders’ decisions to offer you credit.
If you have a score of 750 to 850 this means you have exceptional credit. Having a high score reduces the chance of credit being rejected. 700 to 749 is good, 650 to 699 is fair, 550 to 649 is poor and 300 to 549 is bad. If your score is lower than 550 then you will most likely struggle to be approved.
If you have a low credit score lenders will be able to charge higher interest rates due to it being a higher risk to lend money to you. A high interest rate also pairs with a shorter payment term as this gives the bank more reassurance that the money will be paid back.
On the higher end of the scale, a score of 700 or above is considered good or exceptional. This allows the lender to offer lower interest rates and the money borrowed can be paid back over a longer period of time.
Your credit score can determine the size of the initial deposit which is a mandatory requirement to purchase a smartphone, car, or even the rent of an apartment.
If you request to change an interest rate or want to increase a credit limit on a credit card lenders will look at your credit score again to see if you are high risk or not.
How to Check Your Credit Score And Why Is It Important?
You can check your credit score for free on several companies’ websites. Experian, ClearScore and Equifax are three of the most popular credit score checkers. They allow you to check your score for free whenever you want, and will notify you when your score changes.
It’s important to check your score at least once a year and always before you apply for credit, but also tracking your score each month is beneficial as this allows you to maintain and make any improvements.