Why are credit scores important?

Credit scores are critical to every single US citizen’s financial health. Without a good score, you may find it harder to get credit. There are many forms of credit that people may apply for, including mortgages, personal loans, and small business loans.

To get any of these, you’ll need to look reliable to banks. The easiest way to do that is by having a good credit score. Many factors contribute to this score and we’ll discuss them in this article. Read on to find out more.

What factors contribute to your credit score?

Payment history

Lenders will always wonder if they’ll get their money back from you and payment history is a good indication of this. This is considered to be the most important factor and looks to see if you’ve paid your bills on time in the past.

Amounts owed

How much you currently owe in borrowed funds is another factor. This will look at existing credit agreements like mortgages to see if you have the capacity to pay back a new loan too.

Credit history length

Long credit histories can be both good and bad. If you’ve borrowed for a while but always pay it back on time, lenders will view you as reliable. A long credit history filled with late payments, however, may severely impact your chances of getting a loan.

Recent credit

If you’ve recently opened a string of new credit agreements, your score will go down. This suggests that you’re having cashflow issues and therefore may not be able to pay a loan back.

What is considered to be a good credit score?

When you check your credit score, you’ll typically get a number between 350 and 850. In the US, a good credit score will be anything over 670. With a score such as this, you are seen as reliable to lenders. This will boost your chances of getting a loan.

What happens if you have a low credit score?

A low credit score can impact your life in the following ways:

• You’ll likely pay more interest on any credit
• You’ll find it harder to get a mortgage, credit card, or other personal loans
• It’ll be harder to rent a property

If you’re worried about your credit score, take time to learn more about the ways you can improve it or seek help from professionals who may be able to improve your financial health.