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Credit is when you receive money, a good or a service, and you agree to pay for it in the future—usually with added interest. Nowadays, we use credit to buy lots of things, from houses and cars to groceries and clothing.
If you use it responsibly, credit can be a useful tool. But if you don’t, you’ll have to face some negative consequences that will make your life harder.
Your credit score is a 3-digit number on a scale of 300 to 850 that suggests how creditworthy you are—meaning, how good you are with credit and how much you can be trusted to pay back what you borrow. Potential lenders will use this number to decide what kinds of credit cards and loans to offer you. Generally, the higher the score, the better the offers.
There are a few different types of scores, but the two best-known are your FICO Score and your Vantage Score. They’re calculated based on the information that shows up on your credit report.
Generally speaking, there are five tiers of credit score. A good credit score is anything above 670.
Anything below 670 is considered poor or only fair credit.
Your credit can be brought down a lot faster than it can be brought up, so it might help to review these things that can hurt your credit:
- Not paying bills on time
- Filing for bankruptcy or foreclosure
- Applying for too many credit accounts
- Carrying high balances on your credit cards
- Ignoring questionable negative items on your report
There are five main contributors to your credit score–payment history, amount of debt, length of credit history, credit mix and new credit. Managing your credit wisely by paying your bills on time, paying debt down and maintaining your current accounts could improve your score.
Beyond these five factors, your credit could contain negative items that are unfair or inaccurate, which can stay on your reports for up to seven to 10 years. If you don't want to wait that long, you can try repairing your credit.
We often refer to credit scores as a single number, but that’s not actually the case. Each of the three credit bureaus gives you a customized credit score based on the information on your credit report, and you have a FICO® Score as well
Credit scores range from 300 – 850
The three main credit bureaus are Equifax, Experian and TransUnion. When lenders want to see your credit report, they will request it from one or more of these reporting agencies.
Your report and score can differ from bureau to bureau because they don’t always have the same information, so we recommend you check each report separately to confirm that everything is on the up-and-up.
Essentially, a credit bureau is a company that tracks your ability to pay. They collect information relating to your financial habits, then make this information available to lending institutions and credit card companies.
No, your credit score is just one piece of your credit report. Your credit report also includes identifying information, trade lines, credit history, credit inquiries, public records, collections and other late payment information.
There are five main factors to your credit score–payment history, credit usage, credit age, credit mix and recent credit. Your payment history is the biggest contributor on the list, and can be directly affected by credit repair.