How to Evaluate your Credit Score

Your credit score is one of the numbers that plays a significant part in your day to day life. In fact, this number can have a profound effect on all sorts of different decisions that you need to make throughout life. When you need to borrow money, lenders will take a look at your credit score as a risk assessment to determine if you are a reliable or risky borrower. This means that your score has a direct effect on the interest rate you end up paying for everything from a credit card to a home loan to car insurance or an auto loan. Sometimes, a low credit score can even prevent you from getting a new job or an apartment rental. For these reasons, it is best to maintain a good score in the event that an organization decides to evaluate credit for you by checking your score. Here at PaydayLoansCashAdvance, we want to help you gain a solid understanding of your credit score.

What Is a Credit Score?

Also known as a FICO score, your credit score is simply a number that represents your credit worthiness. This number is based on your past credit history, which includes account payments, outstanding debts and the amount of available credit and accounts. The score can fall within the range of 300 to 850, where 850 being a perfect score.

In the United States, there are three different credit reporting agencies who create and offer credit scores to consumers and organizations. Those three agencies are TransUnion, Experian and Equifax. Your score can vary slightly between the three agencies as they each have different ways of collecting data. It is a good idea to check with each of them to evaluate credit scores and make sure they are comparable on a yearly basis.

If you want to secure the best interest rates, then you need a “prime” score. For a prime score, you need to fall somewhere above 680 to 700. The other score tiers are “near-prime” and “sub-prime.” If your score is in the range of 620 to 680, then you are considered near-prime. Fall below 620 and you become sub-prime, which means getting a decent rate on a loan is next to impossible.

Where Do I Go To Get My Score?

When you are ready to take a peek at your score, you will find a variety of online services that offer a credit score at no cost to you. It is important to keep in mind that some online sites advertise a free score while the fine print mentions one-time or recurring charges for the score. For example, some sites gives you a free score but charges you a recurring fee each month for a credit monitoring service.

To prevent a recurring membership fee, look for sites that offer a credit score for a one-time fee. Often you can purchase a score as an add-on when you buy a copy of your credit report.

Interpreting Your Credit Score

There are seven different classifications for your score, ranging from “no credit” to “excellent” credit. In order from best to worst, here is each classification explained.

Excellent: An excellent score is the best of the best. To classify as excellent, the score must be above 800. This is commonly achieved by having a lengthy credit history that shows multiple accounts that have been paid on-time and used responsibly. Lenders see this as little or excellent risk.

Very Good: A score that falls between 750 and 800 is considered a very good score. It shows that you have a good history of using credit in a responsible manner, including making your debt payments in a timely fashion. As a result, a score with this classification is deemed a very low credit risk.

Good: A good score is one that is in the 700 to 750 range. A score in this range shows that you do not have a lot of debt and that you pay your bills on time, even if you didn’t do so in the past. For lenders, a good score in this range is considered a low credit risk.

Fair: If your score is between 650 and 700, then your classification is just “fair.” People with a fair score are viewed as moderate risks by lenders. Factors that can cause your score to be fair include a high amount of revolving debt or old derogatory marks on your credit report.

Bad: A score that falls between 600 and 650 is considered to be a bad score. Having a score in this range labels you as a bad credit risk to lenders. Things that can get your score this low include high amounts of revolving debt and derogatory marks on your credit report, such late payments, bankruptcy and collection accounts.

Very Bad: Any score under 600 is a very bad score and labels you and an incredibly high credit risk. A number of different items usually come into play at once to cause such a low score. This can be late payments, high credit card debt, collection accounts, bankruptcy and a high number of forms for credit.

No Score: If you’ve never used a line of credit, you may very likely have a “no credit” score. This is a better place to be than having very bad credit, yet it still labels you as a high credit risk. Lenders consider no credit to be a high risk simply because they have no way of knowing how risky it is to give someone a line of credit when they have no proven credit history. Opening a line of credit, such as an installment loan or credit card, is a good way to establish credit and get an actual score. Normally, it only takes a few months of payments on a new line of credit to take someone with no credit to an actual credit score. As long as you use the new line of credit responsibly and make your payments on time, you should see a decent score attached to your credit report.

We hope this has helped you to understand your credit score. Check out our other pages on personal finances, using the advice and tips there, we hope to help you get your footing on the best possible financial ground.

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