Do you need a good credit score? What they mean for loans, cards


A low credit score can limit your choice of loans or determine if you can get one. Here’s what you need to know.

NEW YORK — You know credit scores exist. You might even know what yours is. But do you know how it’s calculated and why it matters?

Your credit score determines whether you can get a credit card, rent an apartment, buy a house, start a business, or even get a cell phone contract.

A low credit score can limit your choice of loans or whether you can get one – and if you can, it could have a high interest rate.

“There’s a huge cost to having a low credit score that happens to people, a real financial cost to them, and it’s a shame that people don’t learn that or know that or don’t lend to it. watch out until it’s usually too late,” said Colleen McCreary, consumer finance advocate at Credit Karma.

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Here’s an overview of how you can create healthy habits to avoid having a low credit score:

What is a credit score?

A credit score is a mathematical formula that helps lenders determine how likely you are to repay a loan. Credit scores are based on your credit history and range from 300 to 850.

“It’s a score that’s going to determine how comfortable people are with lending you money,” McCreary said.

If your credit score is high, you can borrow more money. But if it’s low, you can borrow less or no money, or borrow money with a high interest rate, which can then create more debt.

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Banks, landlords, and insurance companies look at your credit score to determine the type of credit card you can get approved for, if you’re the right fit for an apartment, and your insurance rate, among other things. .

“Essentially, the bank will say, ‘Hey, you don’t have a good credit rating. Instead of 2% interest, we’re going to give you 3% interest,’” he said. Kristin Myers, editor. from The Balance, a personal finance website. “That could mean you’re paying more money over the life of a loan each month.”

How is my credit score calculated?

Although the idea of ​​credit scores is simple, how they are determined is more complicated.

Credit scores can come from several credit reporting agencies. The three most used are Experian, Equifax and TransUnion. Everyone has their own model for calculating credit scores.

Although we generally know what factors go into credit scores, agencies do not share their specific formulas with the public. But each produces a slightly different score.

“One scores like a basketball game, one scores like a football game, and one scores like a hockey game,” said McCreary, who added that you shouldn’t worry if an agency gives you some points less than the others.

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Since you don’t know which agency your lender will go to to check your credit score, McCreary also recommends that you check all three before applying for major credit.

Here are the factors frequently used to calculate your credit score:

  • Bill payment history
  • Length of credit history
  • Current outstanding debt
  • How much of your available credit you are using
  • New credit applications
  • If you’ve had a debt sent to collection, foreclosure or bankruptcy

One thing that doesn’t affect your credit score is how much money you earn, McCreary said. But you should always be careful to only borrow the amount you can afford to repay.

Other aspects that don’t affect your credit score include your age, location, and demographic information such as race, ethnicity, and gender, according to Experian.

How can I find out my credit score for free?

There are several ways to check your credit score for free. A good place to start is to check if your bank offers this service to its customers. Plus, each of the three credit reporting agencies lets you check your credit score for free.

Everyone is entitled to one free credit report per year from the three agencies at, according to the federal government.

Other companies such as NerdWallet, Credit Karma and WalletHub also offer this service for free.

What is a good credit rating?

You are considered to have a good credit score if it is 670 or higher. If your credit score is above 750, you’re considered to have an excellent credit score, McCreary said.

“There’s this kind of dream scenario of having a credit score over 800, it’s a very high credit score and very few people ever get there,” McCreary said.

“Fair” credit scores are considered to be between 580 and 669, a credit score below 580 is considered bad credit.

How can I improve my credit rating?

The journey to improving your credit score is different for everyone. But some steps that can help you fight credit card debt include paying at least the minimum monthly payment and, if you can, paying a little more than the minimum in order to pay less. interest over time.

Additionally, McCreary recommends that you try to maintain a balance between your credit or loans and the amount you can afford to repay.

You can read more expert recommendations on how to boost your credit score here.

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Does checking my credit score lower it?

Checking your credit score doesn’t lower it unless you do a “serious investigation,” which is only done when applying for a line of credit.

Informal inquiries, where you want to know your credit score, do not affect your score and it is good practice to check your credit often to ensure it is accurate.

On the other hand, lenders make tough inquiries when you apply for credit, such as a mortgage or car loan, and these appear on your credit report.

McCreary recommends not applying for multiple credits at the same time as this could hurt your credit score. It’s best to know your credit score ahead of time and then apply when you’re sure your loan will be approved.

Healthy habits for your credit score:

The first step is to check in at least once a year to make sure you’re comfortable with your current credit score.

If you’re considering applying for a large line of credit, you want to check your score a few months in advance and see how you can start improving it. If you’re currently trying to boost your credit score, it’s a good idea to check it often to see if your actions are making a difference.

If you feel you need professional help to improve your credit score, a good place to start is the National Association of Personal Financial Advisors’ Registered Advisor Search Engine. If you notice an error in your credit report, you can dispute it by contacting the respective credit reporting agencies.

Knowing your credit score and maintaining healthy habits in this regard is essential to having a good credit history. However, it’s important for people to know that their financial worth shouldn’t be tied to their credit score, Myers said.

“It doesn’t mean you’re a bad person or you struggle with money and constantly have to fight,” she said.


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