A credit score is a number between 300-850 that depicts the creditworthiness of a consumer. The higher the number, the more favorable lenders will view you. As such, this number (also called your FICO score) significantly affects your financial life. Your credit score is calculated through factors like:
- Payment history
- Total amount owed
- Length of credit history
- Types of credit
- New credit
Credit scores affect:
Your ability to get loans and other services
When you apply to take out a loan, rent an apartment, or apply for a credit card, your credit score will be pulled and reviewed. The better the score, the more likely you are to be approved.
Your interest rates
A good credit score may result in a borrower getting more favorable interest rates, meaning you will pay less over time. If your credit score has improved, you can ask your lender or insurance company to re-run your rates. You may be able to get more favorable terms.
Maintain your credit score
To maintain a healthy credit score, make sure that all bills and debts are paid on time, every time. You should also monitor your credit report to dispute errors and report identity theft, which can devastate your finances. You are entitled to a free report each year through all three credit bureaus at AnnualCreditReport.com: Experian, Equifax, and TransUnion.