There’s a lot of conversation surrounding credit score, mostly about how to improve your numbers. But why should you even bother improving your credit score? If you always wondered what’s the importance of credit score, this article is for you.
In this article, you’ll learn all about the importance of credit score, how to know if you have good or bad credit, and how to boost your credit score. Go ahead and join us on a journey about the importance of credit score!
What is credit score?
Briefly,a credit score is a number that shows your ability to honor your financial commitments. There are many different scoring methods, some may use a kind of information different from the other.
The score is calculated based on information about your credit report, the amount of debt you have, your payment history and the length of your credit history. The resulting number ranges from 300 to 850.
Credit score range
When talking about a credit score range, it’s more about risk assessment: a lender can look at the borrower’s credit score and estimate the likelihood of them repaying a loan in a timely manner. For this assessment, credit score is ranked as seen below:
- 300 to 579: poor;
- 580 to 629: subprime;
- 630 to 689: fair;
- 670 to 729: good;
- 730 to 799: very good;
- 800 and up: exceptional.
A FICO® score is a credit score created by the Fair Isaac Corporation (FICO®). It’s one of many ways to evaluate a borrower’s likelihood to repay a loan, but it’s the most used in the U.S. FICO® scores — in more than 90% of the credit decisions made in the U.S, according to the company’s website.
To assess a credit score, FICO® takes into consideration five factors and uses percentage to represent how important each one is for determining your credit score. Even though the percentages may vary according to each consumer’s particular history, FICO® considers these factors as guidelines:
- payment history: 35%;
- credit mix: 10%;
- length of credit history: 15%;
- amounts owed: 30%;
- new credit: 10%.
Good vs bad credit
A credit score rank is a standard way to assess the borrower’s financial profile. Although, as discussed before, there are several models to calculate credit score, and the result might differ from one model to another. So what’s a good credit score?
At standard, anything above a 670 is considered a good credit score. But there isn’t a magic number that can guarantee you a better loan. The idea of “good” or “bad” credit differs according to your specific objectives: some transactions may demand a higher credit score than others.
If you are thinking about applying for a mortgage, you should aim for at least a 500 credit score. On the other hand, if a car loan is what you are looking for, you might need a credit score above 700. Student loans don’t even do a credit score check — anyone can ask for a loan to pursue higher education.
There are a number of options for anyone looking for loans. Even though we can’t deny the importance of credit scores, a bad credit won’t stop you from achieving your goals — you just have to look in the right places. At OneBlinc you’ll find options of loans without a credit score check — we use our algorithm to assess your financial profile.
How to improve your credit score
There are undeniable benefits to having a good credit score. The importance of credit score is even more evident if you are planning to apply for a loan to make a major purchase, such as a new car or home.
Most people have bad credit at some point in their lives — you might be just starting your financial life, or maybe life happens and your credit history takes a hit. Whatever the case, it can be difficult to know where to start building a good credit history. There are a few actions you can take to improve your credit score:
- pay your bills on time every month;
- keep your credit card balance low;
- don’t use up all your credit limit;
- keep old accounts open to build a credit history;
- pay down revolving account balances;
- dispute credit report errors;
- limit your requests for new credit (thus, avoiding constant credit checks);
- add to your credit mix.
Benefits of having good credit
Credit scores are a measure of the health of your financial life. It shows if you are a responsible borrower and if you tend to pay your dues in a timely manner. Most of all, the importance of a credit score is making the lenders more confident and comfortable in lending you money.
Your credit score aims to paint a reasonably accurate picture of your credit history and is one of the ways a lender can assess your ability to repay a loan. But it’s not an “end all, be all” way to understand who you are. There are other ways to paint an even more accurate picture of your financial life.
At OneBlinc we use our own risk assessment algorithm and alternative data to make our own credit decisions that give us a sharper picture of your financial history and your ability to repay a loan. And if you don’t know where to start, we have a team of experts dedicated to help you find the best option for your financial needs.
Unexpected things happen more often than we would like them to. That’s why OneBlinc is here to help, whether you have an emergency or just need that extra cash to go through the end of the month. We believe in people, and we understand that everyone might need money someday, somehow.