Your credit score plays a very important role in your life. It can determine how much you pay for a mortgage or your credit card’s interest rate.
Your credit history may even be considered when you apply for a job. That’s why it’s important to learn how to increase your credit score and strive for the highest credit score that you can.
To increase your score the fastest, you need to working on minimizing debt and making all your bill payments on time. But there are other factors to consider as well.
What is a Credit Score?
Your credit score is a three-digit number that helps creditors understand how you behave as a borrower. Financial institutions view a lower your score, as a sign that you’re a higher risk borrower. So they think you’re more likely to make a late payment or default on a loan.
There are two main credit scores. Most lenders use your FICO Score, which is the score that most people refer to when they say “credit score.” A FICO Score, created by the Fair Isaac Corporation, is used by most of the top lenders when they consider whether to approve you for a loan or credit.
But some lenders will pull your VantageScore. So, it’s good to know what both scores are.
How is VantageScore Calculated?
Like your FICO score, your VantageScore is heavily weighted by your payment history and the amount of debt you have relative to your available credit. However, VantageScore makes its analysis based on data from all three credit rating agencies. FICO considers them separately.
VantageScore was created in 2006, whereas FICO was created in 1956. So FICO scores have been used by lenders for decades and continues to be the most commonly used score. In contrast, VantageScores are still relatively new.
How Can I Check My Credit Scores?
Some banks and credit cards also provide credit scores for their customers, so you may be able to find your credit score online with your latest bank or credit card statement.
When Should I Check My Credit Score?
Check your credit score before you apply for a credit card, loan or mortgage. This way, you’ll have some insight into what products and rates you may qualify for.
Checking your credit score (and full credit report) yourself doesn’t hurt your credit history, and it’s free at least once a year at the three major credit bureaus. So, it’s a good idea to check your score regularly.
In fact, because of the economic upheaval from the coronavirus, you can now check your score at the three major bureaus once a week instead of annually.
If you see your credit score is not high enough to qualify for your credit card or loan, you may want to avoid applying. That’s because whenever you apply for loans or credit cards, your credit score takes another hit. Although, it’s a fairly small one.
Credit card issuers and financial institutions view an application for credit as a potential red flag of someone who is desperate for money. So that’s why your credit score gets dinged every time you apply. Checking your credit report before you apply to a financial product can help you avoid applying unnecessarily.
Also, when you regularly check your credit report, you can check for any signs of fraud or errors that can bring your score down. If you see potential mistakes, you can contact your creditors and credit bureaus to try to resolve them.
What is the Difference Between a Credit Score and a Credit Report?
Your credit score is a straightforward three-digit number that ranks your creditworthiness based on your credit history and financial situation.
Your credit report, on the other hand, is a more in-depth look at your credit history current finances. It shows specific detailed information about how often you made payments on time. It also reveals how much debt you owe versus your credit limit.
A credit report will give detailed information about each of your accounts. That includes a record of your payment history and your exact credit lines. It will show any credit cards or loans you’ve applied for recently as well.
One thing that does not determine your FICO score or VantageScore is how much money you have. You could have $1 million or $1, and your credit score may be the same.
So, don’t try to raise your score by saving money or making investments. Instead, pay down your debts and make timely payments. Try to diversify your lines of credit.
The Bottom Line
It’s a great idea to get into the habit of checking your credit score regularly and checking your credit report periodically. After all, it only takes a few minutes.
Knowing how you stand in the eyes of creditors can help you connect with the right financial products for you.
Finally, understanding your weak areas in your credit report can help you develop a strategy for raising your score so that you can get lower interest rates on loans and other financial benefits.