The Fair Issac Co. (FICO) credit score range is 300 to 850. FICO’s credit score chart indicates that 700 is the average credit score in the United States. Anything below 640 is considered a poor credit score. Fair scores are between 640 and 680. Scores between 680 and 720 are good, and excellent scores are anything above 720.
Your credit score can have a huge impact on whether or not you are approved for a loan. If you are approved for a loan, your interest rates will be determined by your credit score. In general, the lower your credit score, the higher your interest rate. Additional fees may apply for consumers with low credit scores. This is because individuals with low credit ratings are considered higher risk and more likely to default on a loan. Boosting your credit score may just save you a considerable amount of money in the long run on such things as home mortgages, business loans, auto loans, credit cards, and more. Most of us depend on credit for a variety of reasons in our life. For this reason, taking the time to figure out how to improve a credit score is well worth the effort.
How is Your Credit Score Determined?
Your credit report is essentially a history of your credit habits. Credit reports contain such information as how you’ve paid your bills, how much debt you owe in relation to your credit line, what types of credit you have, whether or not you have any tax liens or have ever declared bankruptcy, and any other factors that affect your level of creditworthiness. All of this information is put into a formula that results in your credit score. Some factors are weighted more significantly than others. For example, your payment history is weighed more heavily than the types of credit you use.
How Lenders Use Your Average Credit Score
Your credit score gives lenders a quick and convenient way to determine whether or not to approve you for a loan. Each individual lending company may also have their own set of guidelines to determine whether to approve or reject a person for a loan.
These days, stores can offer customers instant credit by accessing your credit score with your permission. On that note, one tip for individuals who would like to improve their credit score is to not open credit accounts on the spur of the moment. One of the many keys to credit success is to only open accounts when necessary. Opening an account to save a few dollars on the day’s purchases at a department store, for example, is not worth it. This is because newly opened accounts reduce your credit score for a short period of time. That said, if you don’t plan on applying for a large loan such as a mortgage any time in the near future, then opening new credit accounts may not affect you much.
Accessing Your Credit Report is Your Right
Before 2001, consumers did not have access to their own credit reports. However, because of pressure from industry and consumer groups, and the U.S. Congress, individuals now have the right according to Federal law to access their personal credit report. To get your annual credit report, you will need to contact a reporting agency such as TransUnion or Experian. Credit reports may vary slightly depending on who you order your report from.
Before taking steps to improve your credit score, it is important to review your credit report for mistakes. It usually comes as a surprise to consumers that mistakes are often found in credit reports, even those reports generated by the top credit bureaus. Financial advisors recommend that consumers examine their credit reports carefully. It has been said that nearly every credit report contains at least one error. These errors can have a significant impact on your overall credit score. This is why it’s so important to correct negative data.
How to Dispute Data on Your Credit Report
Every credit report that you order should come with a dispute form. You will need to identify each error and then clearly state why the data is incorrect. It is a good idea to make a copy of your credit report and then circle any errors on that copy. Then, send this copy in along with the dispute form. Be sure to keep records and copies of any documents that you’ve sent to the credit bureau. By law, the credit bureau must investigate disputes and verify or deny them within 30 days of receiving your claim.
Once you have reviewed your credit report and have reported incorrect data—which you should do every year—you can begin to make positive changes to improve your average credit score based on the information found in your report. Over time, with improved credit habits, you may be able to dramatically boost your credit score.