A credit score is basically a number that determines your credit worthiness. It is a numerical value between 300 and 850 and is based upon your credit history. By credit history we mean the number of accounts you have, debts if any, your repayment history and also other factors. The higher your credit score, the better prospect you have in borrowing money from lenders such as banks!
So how to get a “good” credit score? It entirely depends upon the type of scoring model used. Let us analyze the most widely used model- the Fair Isaac Corporation (FICO) model.
Used since 1989, the FICO model is the most reliable and widely used credit scoring model. The FICO score ranges from 300 to 850. Here is the rating based on your score:
- Excellent: 800-850
- Very good: 750-799
- Good: 700-749
- Fair: 650-699
- Poor: 600-649
- Very bad: 300-599
However, it entirely depends upon the lender whether you get a low interest rate or a high one! So now you know what a “good” credit score is. The question is how to get one?! These simple tips will help you to get a good score.
Pay bills on time
The better payment history you have, the better your FICO score will be! Accounting up to 35% of your credit score, a good payment history will ensure your lenders that you pay bills on time and hence you will have a trouble free money borrowing. The best way to pay bills on time is setting reminders on your mobile or setting up automatic payments.
Long credit history
Since the credit history accounts for 15% of your credit score, a good and long credit history will have a positive effect on your credit score. It will reflect your experience with payments and other loans. One thing to keep in mind is that you might harm the length of your credit history by closing a credit card you won’t be using.
Do not apply for credit frequently
Although a long and established credit history is beneficial, you might hamper it by applying for credit too frequently! By opening multiple accounts and having frequent credits might reflect that you are financially weak. This will result in a high risk.
Have varied credits
A varied credit is basically diversifying your credit accounts. For example having a mixed credit in the form of car loan, mortgage and credit cards will ensure a high credit score! (of course you need to pay on time!).
You might be paying your bills on time, having a mixed credit account and a long credit history, yet you haven’t achieved your desired score. If this is the case, then this might be due to some errors on your credit report. For example, misspelled names, incorrect address or any other information that should be removed. So is it always advised to review your report frequently and in case of any discrepancies contact the credit bureau.
A good credit will open the doors for future loans or even loans at a low interest rate! So by following these simple tips, you can easily improve your credit score. Lastly, remember to keep a balance of the above tips i.e. have diversified credit accounts, pay bills on time and maintain a good credit history. And yes, don’t forget to review your report.