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Everything You Need to Know about Your Credit Score

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Achieving and maintaining a good credit score is crucial for financial success in today’s world. Your credit score represents your creditworthiness, and it plays a significant role in determining your ability to secure loans, get better interest rates, and even rent an apartment. Here we’ll dive into the fundamentals of credit scores, explore what makes a “good” score, discuss the importance of having good credit, and provide practical tips on how to monitor your credit effectively.

What is a Credit Score?

According to the Consumer Financial Protection Bureau, a credit score is “a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.” 

By leveraging credit report data such as bill-payment history, unpaid debt, types of loans, number of loans, average loan age, credit utilization, and more, data analysts can calculate a numerical representation of your creditworthiness. This number is commonly known as a credit score and most credit scores range from 300 to 850.

What is a “Good” Credit Score?

Credit scores in the United States generally range from “poor” (300) to “exceptional” (850). although ranges vary depending on the credit scoring model, a “good” credit score generally falls between 670 and 739. Consumers with a “good” credit score are usually seen as lower-risk borrowers. 

Lenders are allowed to lend to whoever they want, however, so just because you have a “good” score doesn’t mean you’ll be approved for the loan you want. Here’s how the most widely-used credit scoring ratings are broken down.

Exceptional: 800 to 850

Very Good: 740 to 799

Good: 670 to 739

Fair: 580 to 669

Poor: 300 to 579

Why Do You Need “Good” Credit?

Having good credit is essential for living in America. Most large purchases like houses or cars are made on credit, and if you have bad credit, no lender will approve you for a loan. Here are some of the main reasons why you want to strive for good credit.

  • Loan Approval: A good credit score means you are a responsible borrower, increasing your chances of being approved for mortgages, car loans, and more.
  • Lower Interest Rates: Good credit means you may qualify for lower interest rates on loans and credit cards.
  • Better Credit Cards: Good credit is required for a credit card with great rewards, low interest rates, and high credit limits.
  • Rental Applications: A good credit score can increase your chances of being approved for a rental property.
  • Insurance Rates: Some insurance companies use credit scores to determine premiums for auto and homeowners insurance.
  • Utility Services: Some utility companies may check credit scores when you open new accounts. A good credit score can help you avoid having to pay security deposits.

How to Monitor Your Credit

  • Websites like Credit Karma, Credit Sesame, and NerdWallet offer free credit scores and credit monitoring.
  • If you have a credit card, check to see if your credit card company offers free credit scores to their cardholders as a benefit.
  • Some banks and credit unions provide free credit scores to their customers.
  • You can request a free copy of your credit report from each of the three main credit bureaus through AnnualCreditReport.com
  • Companies like IdentityForce, LifeLock, and MyFICO offer paid credit monitoring services that include access to credit scores, credit reports, and other features like identity theft protection.

Join Our Upcoming Crash Course on Credit on June 26, 2024

If you want to learn all the ins and outs surrounding credit, and what common myths and misconceptions you should avoid, register for our upcoming webinar.

Register here: https://dailypay.zoom.us/webinar/register/WN_IyPDjUKvQPWXKFpJnv0lug

All information herein is for educational purposes only and should not be relied upon for any other use. The information herein does not constitute the rendering of financial advice or other professional advice by DailyPay. No fiduciary obligation or duty exists, or is created, between you and DailyPay. DailyPay does not warrant the completeness or accuracy of any information provided to you.

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