What’s a Credit Score?

If you’re applying for a conventional loan, payday loan or just need a cash advance, your credit score could have an impact on your interest rate and loan term. So what is a credit score? What’s in it and what does it say about you? Credit scoring is how creditors or lenders assess their risk when lending money to you. They look at your score and it indicates to them how financially responsible you are.

Your credit worthiness is calculated by credit scoring agencies and bureaus. You should get a copy of your credit score at least once a year and make sure that there are no mistakes or omissions in it. You can get this information for very little money and sometimes for free. Your actual score will be between 300 and 900. Higher scores are much better and can get you great interest rates, longer pay-off periods or terms, lower fees and less paperwork in the application process. Low scoring applicants are usually rejected all together or they are offered high interest rates, minimum payments and fees. Sometimes low scoring applicants are accepted based on their employment history or other factors, but generally aren’t as trustworthy as their higher scoring counterparts.

So, what is a good score? 650 or higher is a very good score and will earn you the very best terms when applying for loans. If there are a few minor problems with your credit history, such as a couple of late payments in the last few years, then you can score between 620 and 650, which is still a good score. You may run into a few problems with this score, but generally it is still pretty good. You’ll probably end up with slightly higher interest rates than people with excellent credit. Scoring under 620 puts you into a risky category. You may still be approved for a loan, but it will be at the highest interest rates and you’ll be considered a big risk to lenders.

Things that affect your credit score include your credit payment history, late payments and missed payments. Late and missed payments on a credit card or loan are very big considerations when calculating your credit score. You should try to never make a late payment because it blemishes your record for years. Another thing considered when figuring your credit score is your debt to income ratio. If your level of debt is very high relative to your income, or if the cards you have are close to their spending limits, then your score will go down. If your credit history is very long and you’ve had revolving credit for years, then your score will drop. Trouble paying things off completely makes you look like you are in over your head, or you’re just not trying to pay off your debts. Hits on your credit are another thing that is looked at. If you’re constantly applying for credit cards and loans, regardless of your acceptance or use of the instrument, then you look like someone who can’t afford the things that you’re trying desperately to get. Do your research before choosing a loan or credit card to apply for. Multiple inquiries on your credit can hurt you in the long run.