Whether you’re planning to take out a personal loan or apply for a phone contract in the future, you need to understand that your credit score plays an important role with your approval. Put simply, your credit score is a quick indicator creditors and providers use to determine your credit worthiness.
A bad credit score obviously means bad news. You’ll generally have a harder time getting approved for any financial product when you have one considering that you’ve been tagged as a high risk borrower. At this point, you might want to do something about your bad score but before you go on and try to improve it, here are some things you need to know:
What is a credit score?
A credit score is comprised of a three-digit number which generally falls between 300 and 850. These scores are labeled into five things starting from poor to fair, good, very good then excellent. When providers run credit checks, the check your score and consider it as a major factor when providing approval or disapproval for your application.
How is it calculated?
There are different credit report agencies that calculate your credit score. Calculations are based on your credit report which you can double check for free at Experian.
When formulating your credit score, there are several factors that are taken into account which may include your payment history, amount of debt owed, new credit accounts and so on. All of these factors are assigned a numerical value and calculations are then based on how much they affect your credit worthiness. Payment history, for example, plays a huge role considering that is comprise 35% of your credit score.
Other factors that affect your credit score are amounts owed (30% of your score), types of credit used (15%), new credit (10 to 12%) and length of credit history (5 to 7%).
Is it possible to improve my credit score?
Fortunately, no matter how poor your credit score may be at the moment, there are numerous ways you can do to improve it. From bad to good to excellent, you can successfully boost your credit score by carrying out financial actions that focus on the key factors that affect your credit worthiness.
For example, you can commit to pay your dues and bills on time for the next 12 months or so. Considering that payment history is a huge factor used when formulating credit scores, by simply paying your bills on time, you’re sure to see a significant improvement on your rating over the time.