You may not know what it is, let along what yours is, but you’ve probably heard the phrase “credit score” at least a few times. Especially if you’ve ever made a large purchase like a car, applied for a lease on a home, or even applied for a corporate job, you’ve definitely heard about it or at least had yours checked. But even so, you still may not know exactly what a credit score is or how it’s calculated. Given how important this piece of information can be in your life, it’s well worth knowing what it means. And how to make it work for you.
What Is a Credit Score?
In simplest terms, your credit score is a three-digit number (between 300 and 850) indicating what level of risk a person, company, bank, or other entity can expect when loaning money or renting something to you. Think of it as a grade for your financial health. It’s based on your personal financial history and factors in things like debt, how promptly you’ve made payments in the past, and if you’ve ever applied for a loan or multiple loans.
We’ve provided the full breakdown of how your score is compiled to help you understand exactly what credit bureaus are looking for:
- Payment history – 35%
- Credit usage (how much of your available credit you use) – 30%
- Age of credit accounts – 15%
- Credit mix (how many different types of credit and bank accounts you have) – 10%
- New credit inquiries – 10%
Scores are broken down into the following categories:
- Excellent: over 750
- Good: 700-749
- Fair: 650-699
- Poor: 620-649
- Bad: under 620
How to Check My Credit Score?
Credit scores are primarily calculated by three major credit reporting agencies: Equifax, Experian, and TransUnion. As per federal law, all three credit bureaus must allow you to check your credit score for free once every twelve months via AnnualCreditReport.com.
What Is the Difference Between the Three Credit Bureaus?
Even though they pool all their data together for your annual free credit report, these are seperate companies. However, these companies play an important role in determining whether or not you can receive a loan and how much a lender will let you borrow. And while they generally have the same data, the three credit bureaus may calculate your score using different factors. So it’s common for one person’s score to be slightly different from each of these agencies.
The oldest of the big three credit bureaus, Equifax goes all the way back to 1899 when it was founded as the Retail Credit Company in Atlanta, Georgia.
The only one of the three based overseas (in Dublin, Ireland), Experian was founded in 1996, making it the youngest of the bureaus.
Chicago-based TransUnion is the smallest of the three agencies, but that certainly doesn’t diminish its importance when it comes to your credit score.
How to Increase Credit Score Quickly?
Risks, credit agencies, and financial history can make credit scores sound like a complicated and difficult concept to understand.
If you have checked your credit score and you find that you want to improve your number, you may be wondering: what options are out there? Can you raise your score quickly?
Luckily, the ways to raise your score are all pretty straightforward and easy to do if you do the research. We’ve compiled the top 4 ways to boost your credit score quickly for you. So you can buy a house, that car you’ve always wanted, or just be secure in knowing you have a great credit score.
1. Start Paying Off Your Debts
Maybe you have student loans, a mortgage on a property, outstanding medical bills, or what have you. If you’re already making payments on these debts, great. That’s already helping your score.
Start off every month by setting a budget and include only the essentials. No more going out on Friday nights to your favorite restaurants or seeing the latest movie.
Here is a quick tip – with the extra money that you are putting aside every month, start chipping away at the smallest debts first. Seeing small, frequent victories will help keep your head in the game and remind you of why you are cutting back on unnecessary costs. The faster you pay them off, the better for your credit score and the sooner you can go back to your favorite hot spots.
2. Pay More Than the Minimum on Credit Cards
You’ve already buckled down on your budget, so now the next step is to start paying off your debts. If your debt is primarily credit card debt, you’re not alone.
Paying the minimum due every month certainly doesn’t hurt your credit, but by the time your interests are added on what you owe, you are barely making a dent in your total payment.
3. Pay Bills on Time
An easy way on how to raise your credit score is to pay your bills on time. Especially your credit card, phone, water, and power bill. Even if you always eventually pay in full, paying late can lower your score.
Here’s a quick tip – set up an autopay schedule. Most utility and phone companies offer it, which takes the guesswork and sticky note reminders out of it.
4. Pay Rent on Time
Along the same lines as paying your bills on time, paying rent (if you’re already living in a rental property, of course) when it’s due also helps boost your credit score. Even if your landlord doesn’t get on your case when it’s a bit late, it can still hurt you. A pattern of prompt payments will raise it.
Here is a quick tip – to make sure your rent-paying diligence pays off fast, use Rock the Score. They make work with credit reporting agencies, like Transunion and Equifax, to let them know right away every time your rent is paid so your score goes up quickly!
What’s a Good Credit Score to Buy a House?
You’ve made a strict budget, you’re paying off your debts on time, and you’re working with Rock the Score to boost your credit quickly. Now you’re wondering, what should your credit score be to buy a house?
There isn’t a set answer for this as it can vary widely based on where you’re getting your loan, what the seller is willing to accept, the value of the home itself, and so on. In general, the most widely quoted minimum to buy a home is 620 which is also the minimum credit score to qualify for a VA Home Loan. While 620 may be the minimum score to purchase a home, the higher your credit score the lower your monthly interest rate will be. And this can cost you thousands of dollars in interest over a 30-year mortgage.
It often comes as a surprise to many people buying or renting a home for the first time just how much this three-digit number matters. It may even be a bigger surprise finding out that you have a low one. However, it’s a simple matter of discipline, diligence, and good financial practices to raise your score and keep it high. Pay your bills, pay your rent, and, if you need speed, have Rock the Score make sure your credit goes up fast. With hard work and patience, your credit score will soon be high enough to help you buy the home of your dreams.