Complete Guide to Credit Scores

A good credit rating is your opportunity to apply for a loan and get it at the best interest rates, rent an apartment, conduct a transaction and get many more things that require a credit check. However, what does your credit score start at?

To establish a credit score, you must have credit accounts linked to your Social Security Number. Of course, the higher your credit score, the better. As a rule, it ranges from 300 to 850. It can be said that your rating starts at zero when you receive your first loan. Thus, when applying for a loan, the lender will see that you do not yet have a credit rating and, accordingly, here is no score available to look through.

In order to create your profile, you need to do the following. The first option is taking out a Credit Builder Loan. These loans are specially designed to enhance your credit history by reporting your payments to the credit bureau. The second option is applying for a low limit secured credit card. Or take advantage of bad credit loans online approved even to applicants with low credit or no credit at all.

As a rule, many new borrowers expect that after the first loan is paid off, their credit rating will immediately become the best. Thus, they expect to see 850, however, beginners are given a score of around 650.

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What factors are used to calculate your credit score?

Of course, your credit rating is made up of several factors. If you are a beginner and want to understand what's in your credit score, take a look at the main factors.

  • The most important part of your credit score is your payment history. Each lender looks at the borrower's payment history before approving a loan because they want to make sure you can pay it back on time. If you have late payments, it can negatively affect the obtainment of the loan. Thus, if the lender sees problems with your payment history, he may offer you a loan with high interest rates, or even refuse you at all. This happens because people with poor payment histories pose a risk to lenders that not all of them want to take on. Typically, your payment history is about 35 % of your credit score.
  • The amounts owed are also an important part of your credit rating. The loan utilization rate should be at 30 percent. The lower it is, the better for your credit rating. If your credit card debt utilization rate is below 30 percent, you will have a high and reliable credit rating. The amount owed is about 30 % of your credit score.
  • A long credit history can show lenders that you often borrow and pay it back on time. If you have a large number of loans paid on time, your credit rating will be high. Thus, a long credit history is about 15 % of your credit rating.
  • The credit balance is also reflected in your credit score. You should have a middle ground between an installment loan and a revolving debt. It is about 10 % of your credit rating.
  • Loan applications also account for about 10 % of your credit score.

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How can you have a High Credit Score?

To start, it is important to know if you have a credit rating and what it is. As a rule, most Americans do not even know their credit rating, which puts them in a disadvantageous position. If you know your credit score, you can understand what interest rates on a loan you can apply for. Also, people with a good credit rating receive loans for larger amounts than people with a bad one.

However, if you want to achieve a good credit score from the beginning, there are a few tips you can follow to get the best loans at the best interest rates in the future.

  • Payments on time. If you want to have the best possible credit score, then first of all you need to pay attention to the regularity of your payments. Any late payment will lower your credit score and diminish your chances of getting profitable loans. Timely payments are something you can control for yourself. Remember that payment history is 35 percent of your credit score. If you always pay on time, your credit score will be high.
  • Using the card. If you regularly use the card, make payments, charge small amounts and pay the full balance, then this can help you with credit-building. Your task is to show the lender the responsibility for using the loan. However, extreme use of the card should be avoided. As a rule, most creditors consider this behavior to be risky. Thus, it is important to use the card and money responsibly.
  • Savings for an emergency. There are situations when you cannot pay off your loan on time due to certain living conditions. It is important to understand that if you miss a payment, your credit score will become worse. However, if you have an emergency fund, you can use your savings to get the loan repaid monthly. This will prevent you from deteriorating your credit score.
  • Use Credit Monitoring. Of course, you may face such circumstances as theft of your data, transfer of your personal information to third parties, errors in credit reports, fraud, and others. All of these situations can lead to a deterioration in the credit rating. However, if you are using Credit Monitoring, you can be aware of any changes in your credit score. Using this service, you can control your credit rating and be sure of your safety.

Thus, achieving a good credit score is not easy, but possible. You need to pay off your loan on time, use your card regularly and responsibly, and use Credit Monitoring. However, if you follow these tips, your credit score will be high and you will be able to apply for large loan amounts with favorable interest rates.