Home › Questions › Credit Score › How Do Credit Scores Work?
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July 10, 2024 at 10:05 pm #437KikoffKeymasterJuly 10, 2024 at 10:52 pm #478KikoffKeymaster
A credit score is a number representing your “creditworthiness,” or how likely you are to repay the money you borrow from them.
The two most commonly used credit scoring systems are FICO and VantageScore. Each of them uses different factors to calculate your credit score, which can range from a minimum score of 300 to a perfect score of 850.
What Impacts Your Credit Score?
- Payment History: This makes up about 35% of your score, so consistently paying your bills on time is a high priority.
- Credit Utilization Ratio: This measures how much credit you’re using. Keeping your credit utilization below 30% is a best practice.
- Length of Credit History: The longer your credit history, the better. Lenders like to see a well-established credit record.
- New Credit Inquiries: Multiple recent inquiries can lower your score temporarily.
- Credit Mix: A variety of credit types, such as credit cards, mortgages, and auto loans, can mean a higher score.
A good credit score opens doors to better loan terms, lower interest rates, and higher credit limits. But, a low score can limit your financial options and cost you more in the long run.
The more you understand what goes into your credit score, the better off you will be.
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