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Demystifying Your Credit Score: A Guide For The US

For securing a good loan in the US, it only takes maintaining a good credit score. The credit score is basically a number of three digits that ranges from 300 to 850, it is used for reflecting the creditworthiness of your account. It is being used by lenders to assess your ability to repay the amount you borrow. If you have a good credit score, then you will get rewarded with a bunch of fiscal benefits. These benefits will include better deals on credit cards and lower rates of interest. So, it is very crucial to understand the credit score. 

What Makes Up Your Credit Score?

The major factors that aid in making up a credit score are as follows: 

Payment History (35%): It is the most crucial factor considered for credit score. It tracks down the history of timely payment of bills including credit card bills, utility bills, personal loan payments, etc. Delays in bill payment aid in dragging down the credit score.

Credit Utilization (30%): It is defined as the ratio of credit used by you in comparison to the total available limit to you. It is advisable to keep the credit utilization ratio below 30%. If you use your credit limit to the highest, then it can harm your credit score.

Credit History (15%): It is better for you if you have a longer credit history. You will be considered a reliable borrower if you have a longer list of well-managed credits. Chances of improving credit score get higher with a longer credit history. 

Credit Mix (10%): If your history has a mix of different credit accounts such as installment loans, mortgage loans, and credit cards, then you will be liked and prioritized by the lenders. This mix will help lenders to check your ability to handle a variety of credits. 

New Credit Inquiries (10%): Your account or the credit profile will go under hard inquiry every time to apply for a loan, a credit card, or any utility. Your credit score might be decreased if your profile undergoes several hard inquiries within a shorter span.  

Understanding Your Credit Score Range

The range of credit scores can be easily understood by the breakdown presented below: 

Excellent (800-850): It is considered as the golden zone. The score prevailing in this zone displays excellent creditworthiness that will help in securing the best loan terms and rates. 

Very Good (740-799): This range displays a strong credit score, the individuals ranging between this range will get qualified for interest rates that are favorable to them. 

Good (670-739): The score prevailing within this bracket is considered a good score. The individuals in this bracket will get access to several credit cards and loan options.

Fair (580-669): This range displays the fair credit score, the individuals prevailing into this range may get qualified for the loans that are available at a higher rate of interest. 

Poor (300-579): A score ranging into this range is considered as the lower score. The individual in this range will have to face difficulty in qualifying for a loan with favorable terms and interest rates.

These credit ranges are in general and can be varied with different credit bureaus and scoring models. 

How to Check Your Credit Score

You can get access to your credit report for free every year. You can get your credit score report annually from three major credit bureaus in the USA, the credit bureaus are TransUnion, Experian, and Equifax. You can make your request for accessing your free annual credit report through the Annual Credit Report. You can also connect to different credit card companies and banks to monitor your credit score report as some of them offer you your free credit report as part of their services. 

Building Your Credit History in the US

For getting your credit history on the positive side, some considerations are to be given, such as: 

Obtain a Secured Credit Card: You can get a secured credit card by providing a security deposit to the credit card provider. The security deposit provided will serve you as your credit limit. It will help you in building up your credit score if you use this card with responsibility and make the repayments on time. 

Consider taking a Credit Builder Loan: It is a sort of small loan that lets you conduct the payments in a locked account. The payments made by you during the loan terms will be provided back to you after the completion of the loan term. This loan can facilitate you in building your credit score as the reports of your timely payment and discipline during the loan term will get reported to the credit bureaus.

Become an Authorized User: You can get yourself added as an authorized user on the credit card that is being used by any of your family members or friends with a good credit score. Your credit report will reflect the positive credit history of your friend/ family member, it will aid you in improving your credit score. 

Taking Charge of Your Credit Score

You can get your credit score enhanced by understanding the different factors that affect it. Some tips for improving your credit score are as follows:

Make payments to all the bills consistently and on time without causing any delay. 

Do not apply for multiple loans or credits within a shorter span. 

Always try to keep the balances of the credit cards at the lowest, as too much use of the credit limit can lead to a decrease in the credit score. 

To check the error, you have to keep reviewing your credit reports on a regular basis, by this you can also dispute the inaccuracies if found.

Bottom Line

It takes too much discipline and time to build a good credit score. The rewards of a good credit score are also significant. You can follow the above tips and instructions to get access to your brighter fiscal future. Just keep in mind that, if you have a good credit score then it is considered as an investment in yourself.

FAQs

 

1. What’s The Single Biggest Impact On My Credit Score?

Payment History will be considered as the single biggest impact on the credit score. It contributes to around 35% of the overall score. So, it is very important to make all the repayments on time, as it leads to building up a good credit score. 

2. I Only Use a Single Credit Card. Is that Bad?

It is not necessarily bad if you use a single credit card but can incur some drawbacks. If the credit utilization ratio gets higher, then it might show its impact on your credit score. For emergency usage, you have to consider keeping a backup card. 

3. Will Checking My Credit Score Hurt It?

No, it will not hurt your credit score yourself, as it will get counted as a soft inquiry, but if the credit score is checked by any lender for a loan application then it can get a dip. At that time it will conduct a hard inquiry on your credit. 

4. How Often Should I Check My Credit Report?

You are advised to review or check your credit score once a year. In case you want some frequent monitoring of your score then you should consider checking it monthly or quarterly. 

5. How Long Does It Take To Improve My Credit Score?

It is not an easy task to get your credit score improved, it generally takes about 30 days to 360 days for your credit to get improved. It will take longer if you have a lower credit score. 

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