Credit Score

What is Credit Score?

A credit score is a number assigned to a person that indicates to lenders their capacity to repay a loan. If you take out a loan, get a mortgage with a low interest rate, rent property, or open a utilities account, your credit score is an indication of your ability to make your payments. Your credit score can range from 300 to 850 and is calculated by your repayment history, the amount of debt you currently have, and other financial factors. Think of your credit score as your credibility. The more credible you are, the more likely it is that someone is going to trust you.  

How is a credit score calculated?

Your credit score is calculated by four different factors.

  •  Your ability to pay bills on time

  •  The amount of debt you currently hold

  •  The length of your credit history

  •  Having a variety of different debts

What happens if your credit score is low?

It is very important for you to keep paying your bills on time and keep your debt minimal because it is easier for your credit score to decrease than it is to increase. There are three different credit score bureaus: Experian, Equifax and TransUnion. These bureaus compile all of your financial information and then use the FICO (Fair Isaac Organization) algorithm to calculate your credit score. Each of the bureaus will likely give you three different credit scores, but they will all roughly be around the same.

Hard vs. Soft Inquiries 

  • Hard Inquiry - when a lender checks your credit review to make a decision on whether to lend you money. You can find this inquiry on your credit report. This inquiry can affect your credit.

  • Soft Inquiry - when you, a lender or credit card company checks your credit to approve you for an offer. This inquiry doesn’t affect your credit. 

If you’d like to check your credit score without harming your credit, there are apps such as Experian that will allow you to do so. 

Below are the average ranges of good credit and bad credit: 

  • Exceptional: 800 and above

  • Very Good: 740-799

  • Good: 670-739

  • Fair: 580-669

  • Poor: 579 and lower