New to Credit Scores? Some Answers to Your Questions

Whether you're a young person just starting out on your own or you simply haven't had a lot of financial education, the world of credit histories and credit scores can be confusing. But you should understand the basics so you can access the credit you need, avoid financial mistakes, and get the best deals when borrowing. To help with this goal, discover some answers to your questions about credit scores.

What Is Your Credit Score?

A credit score is a number (generally between 300 and 850) assigned to your history of credit usage in order to tell lenders if you're a higher risk or a lower risk. The score is a calculation based on your credit history that is compared to similar consumers and used to project how likely you are to default on a loan or other credit.

The idea of a single credit score, though, is a bit misleading. In fact, each American has three credit scores — one assigned by each of the three credit reporting agencies, Experian, TransUnion, and Equifax. A lender may use one or more of these as their source. While your score can be the same on each service, it can also be different.

What Factors Affect Credit Scores?

One of the biggest is how much of your available credit you use. This is the difference between what the lender has agreed you can borrow and how much you actually use at the moment. The more available, the better. 

In addition, the credit score includes how many accounts you have open or have had open recently, how long you've had a line of credit, how many late or missed payments exist, whether you've filed for bankruptcy, and how many different types of credit you've used.

What Is a Good or Bad Credit Score?

So, what makes a good or bad credit score? This can vary, but generally, a FICO credit score of 800 is considered top-tier, or excellent. Good scores range between 740 and 799. Anything below 580 is considered poor credit.

Different lenders, though, may have different thresholds. For example, mortgage lenders, signature loans, credit card issuers, and retail stores may have their own thresholds.

Do You Have to Borrow a Lot of Money?

While your credit score is based on a history of borrowing money, this doesn't mean you have to carry large debts to get a good score. In fact, timely payments of a $1,000 loan are treated the same as timely payments of a $10,000 loan. Paying off a loan early or paying off a credit card balance each month doesn't result in much difference from those who pay for a long period of time. 

How Can You Improve Your Score?

So, how can you ensure you have a good credit score? Discover some things any borrower can do:

• Make payments on time, every time by keeping debt manageable and within your means. 
• Use different types of credit, including revolving credit and amortized loans.
• Avoid missed payments by using automated payment options. 
• Don't max out credit cards or lines of credit, which reduces the amount of available credit.
• Fix errors that appear on your credit history. 

Monitoring and improving your credit score can take time but is worth the effort. The result will be less expensive sources of credit, better references for employers and landlords, and less stress during financial emergencies.

Where Can You Learn More About Credit?



Want to know more about your credit score, credit goals, or what might help you build a better score? Start by talking with the credit professionals at Ardmore Finance. We work with borrowers of all shapes and sizes, and we can help you not only work with a low credit score but also create a financially sound future.