Banking and Finance

Everything You Need to Know About Credit Score

July 27, 2021

According to Fortunly, one in five Americans aged 20-29 doesn’t know their credit scores. And, if you don’t really understand what a credit score is or how it can benefit you financially, why would you need to know your credit score, right?

Not exactly! A credit score is an important aspect of living life in America. Some employers will check your credit score in order to qualify for a job, it’s a crucial component of getting a mortgage loan, and it can affect your ability to get lower interest rates on certain credit cards.

From learning about what a credit score even is to figuring out how to improve your credit score, we’ve created a comprehensive guide on everything you need to know about credit score.

What is a Credit Score?

The actual definition of a credit score is a number ranging from 300-850 that depicts a consumer's creditworthiness. Basically, depending on various factors such as previous debt and other financial activity, a credit score is a way to determine whether or not you’re eligible to take out other lines of credit. This is why it’s such an important aspect when it comes to credit cards, car loans, and mortgage loans.

When determining your credit score, scoring systems will look at the number of open accounts you have, your total levels of debt, and repayment history. This includes everything from student loans to credit cards and any other form of loan you’ve taken out in the past. There are a few credit-scoring systems that exist, but the FICO score is usually the most commonly used when determining your creditworthiness.

How do FICO and VantageScore calculate a credit score? As mentioned, they’ll look at various factors such as the total amount of debt, repayment history, new lines of credit, length of credit history, and the types of credit you’ve taken out (this is why some financial experts suggest having a credit card). But, Experian, Equifax, and Transunion are the three major credit reporting unions that report and update credit histories.

What Are the Different Credit Score Ranges?

What Is a Good Credit Score? - Experian
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After determining your creditworthiness based on your credit score range, most companies and lenders will either approve or deny your application for a loan or a credit card. If they approve the loan then, depending on your credit score range, they’ll set interest rates and other terms. This means that it’s not only best to have a good credit score but work towards one that’s excellent.

Generally, you’ll find that lenders group credit scores into five different categories: 

  • Excellent: 800 to 850
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 300 to 579

It’s generally hard to get approved for a loan or access good interest rates if your credit score is lower than 640 to 670. Once you reach 700, you’ll notice that a lot more doors open for you financially. And, having a credit score of 800 or higher will ensure that you’re able to enjoy some of the best loan terms available.

How to Check Your Credit Score

check and improve your credit score
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If you want to check your own credit score, we’d advise doing so via a third-party app such as Mint and Credit Karma. You’re technically able to request a free copy of your credit report from each of three major credit reporting agencies once each year, but apps and platforms such as Mint will allow you to see an updated credit score more often without any penalties.

Penalties? Yep. Credit inquiries are classified as a hard inquiry or a soft inquiry. If you’re applying for a new credit card or a loan, the financial institution will perform a hard inquiry which requires your social security number. Each hard inquiry results in a small dip in your credit score and the inquiry will remain on your credit report for up to two years.

Soft inquiries, however, don’t appear on your credit report. A soft credit inquiry is a way to obtain a credit report just for personal use. And, credit aggregating services and financial planning apps are able to perform soft inquiries to help inform you of future financial decisions and monitor how you’re either improving or hurting your credit score.

Ways to Improve Your Credit Score

There are a few simple ways to improve your credit score without opening more lines of credit. One of the easiest ways is to ensure that you’re paying all of your bills on time. This means paying your credit card bills and student loan payments on time each month. In doing so, you’ll usually see an improvement in your credit score after about six months.

If you don’t currently have any credit, you’ll want to do your research and perhaps open a new line of credit with a credit card company. Companies have credit cards for students and other types of cards available to suit the specific financial needs of various types of spenders. If you already have a credit card and are in good standing, contact the company to ask if you can increase your line of credit. 

And, if you do already have a credit card but don’t use it much, don’t simply close out the card. Closing out accounts can affect your credit utilization rate and reduce your score in terms of the total credit amount you have open. If you’re really interested in closing out the account, it’s best to speak with a financial advisor in order to look at your options and assess how it will affect your credit score and what some other options might be.

Optimizing Your Savings Outside of Credit

It’s possible to optimize your financial health without worrying about credit. While you’ll eventually need to improve your credit score or at least check your credit score if you plan on taking out any sort of loan in the future, focusing on your savings is just as important.

And, the Cheese Debit Card can help you do just that. Our FDIC-insured debit card comes with $0 in fees on top of lots of great savings opportunities.  In fact, you can earn a lot of cashback for simple spending. And, while it won’t improve your credit score, it certainly won’t hurt it, either.

Interested in a Cheese debit card? Click here to sign up!

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Cheese 银行卡 美国华人最好的选择