For many, a credit score is a number to be feared. This isn’t entirely unreasonable – a credit score will directly impact your ability to get a loan and will go as far as to make some bold claims about you as a person. Did you recently receive your credit score but are unsure of the what and the why? Read on for some explanation.
Breaking down your credit score
On the outside, a credit score seems like little more than a three-digit number. Rest assured, though, that the data for the number was meticulously gathered and that the value was carefully created to give others a perfect idea of how responsible you are with money. Object all you want, but most institutions will consider your credit score as the be-all end-all when deciding on loan eligibility.
When it comes to credit scores, the bigger the better – the higher the number, the more financially responsible you’ll come off. As such, credit scores that exceed 700 or even 800 are given to the best of the best – those of us who have made sure not to miss any payment ever and have successfully avoided any collections. If you have a credit score of 700 or above, you’ll be eligible for most loans that fit your income and general means.
Once credit score reaches 650, things start getting ugly. Generally speaking, anything above 650 still makes you look like a good borrower (although it’s implied you missed out on a couple of payments in your time). 600 and under tends to mean that banks will see you as someone who has no business borrowing money, as the number hints towards mortgage payments that were neglected for a long time, maxed out credit or other naughty-naughty things people do with their money – most loans you can hope to get with such a low credit score will come from shark-esque institutions aiming to take everything you have. It’s worth noting that there are several institutions giving out credit scores with some having a bottom cap of 300 or even 100, but the above still stands true.
But why is my credit score what it is?
Understanding your credit score might be difficult at first – you are rarely given any tools that clue you in on the why of it all. Therefore, working with your accountant or a similar entity is a good idea – he or she should know everything that your credit score is comprised of and will go over each individual factor with you.
To know why your credit score is what it is, you’ll need to gather personal credit reports, business credit reports, history of collections, credit card info and so forth. There’s a good chance you acted irresponsible with a credit card in the past and have forgotten about it in the meantime – this will play a big role in your credit score, so make sure to get a listing of anything you might have done when you weren’t as fiscally conscious.
Improving your credit score isn’t easy (some might even call it impossible), but that doesn’t mean you shouldn’t start making positive improvements regarding how you handle your finances – get a listing of everything you did wrong that now reflects in your credit score and work from there.