What is Your Credit Score?
A credit score is a measure of how reliable you are with your credit and how risky it would be to loan you money. Your credit score is a number between 300-900 and it helps determine your creditworthiness. Credit scores are calculated using information from your credit report. There is no “magic number” when it comes to credit scores and models may vary but usually scores from
300 - 559 are considered "poor" or "sub-prime"
560-659 are considered "fair"
660-724 are considered “good”;
725 - 759 are considered very good; and
760 and up are considered “excellent.”
Is a credit score important?
Lenders use credit scores to determine the level of risk that a borrower will be. Higher credit scores mean that you have exhibited responsible credit behaviour in the past and will make lenders more confident in your ability to repay a debt.
If you have a score of over 700 you have a strong record of being good with your credit, because of this you will be approved for credit cards, mortgages, loans, and lines of credit. However, if you have a score of 550 or lower it will be harder for you to get approved for various lines of credit, and even if you do get approved the offer may come with higher interest rates and a lower limit than if you had good credit.
What factors affect my Credit History?
Creditors look at many aspects of your Credit History to determine your credit worthiness like-
- Recent Activity- It is a good idea to apply for a credit card or other credit products to build your credit history. But try not to make too many credit applications in a short amount of time. It signals to lenders that you may be over stretching yourself which may affect your ability to repay.
- Length of time that credit accounts are open & active- It is a good idea to keep your older credit cards active, even if you do not use them regularly. Closing a credit card account, you’ve had for a long time may decrease the average age of accounts on your credit history, which could negatively affect your credit scores. In general, creditors like to see that you’ve been able to properly handle credit accounts over a period of time.
- Patterns & regularity of payments over a period of time- To help build your credit history, try to keep making regular payments (including interest, if applicable) rather than paying off all debts in one go. This helps establish a positive payment pattern which helps improve your credit score
The credit score calculation typically includes both how long your oldest and most recent accounts have been open as well as the average age of your accounts. In general, creditors like to see that you’ve been able to properly handle credit accounts over a period of time.
What is credit utilization & how is it calculated?
Credit utilization (or simply put, credit card utilization) is the amount of available credit you use at any given time.
A credit utilization ratio below 30% is considered very good. So, try to use not more than 30% of your available credit on your credit card.
How to improve your credit utilization and raise your credit score?
- Avoid debt - Always try to pay more than the minimum each month
- Lower your spending - If you know, you won’t be able to pay off, try not to overspend
- Increase your credit limit - Your credit card issuer should be able to increase your credit limit based on their terms & conditions
- Get your profile updated - Call up your credit reporting agency (Equifax, TransUnion and Experian) and get your profile updated with the recent changes
The easiest way is to get a secured credit card. A secured line of credit or a secured card allows you to use money on credit, as long as you’ve put up the funds first to secure that credit. This mixed with the weekly tips on how to build your credit should start to help you notice a change in your credit. Remember, this is a process so it won't happen overnight. To Apply for a Plastk Secured Credit Card click here.
