In this era, making yourself creditworthy is considered important than leading a life without credit. This is not to say, you should borrow. But, it does seem to pay to have a great credit score for they might help you when you are by chance forced to apply for a loan or to avail a prepaid debit card. The credit score is what you are assigned. The credit score is calculated based on the credit history and the credit scores and credit reports that are generated by finance companies like credit karma has made it easy for you to access credit scores and reports even without having to register a credit card.
What is a credit score?
A credit score is a number that that equates the risk that a lender takes when a loan is offered to you. It is also known as the FICO score. It is because the measure of risk created by the Fair Issac corporation was considered to be fair and was used extensively by credit agencies to put forth the borrower’s risk. Generally, a higher credit score represents a lower risk to the lender.
How are credit scores arrived at?
The credit bureaus that are responsible for creating credit reports in the U.S include
The credit scoring models that they employ include Vantage score and FICO. The scores that are arrived at a range between 300-850. They also employ their own proprietary models to calculate the scores.
What are the factors that are considered to calculate the credit score?
The factors that are considered include
- Payment history of yours
- The length or time period of the credit
- Types of credits that you have availed ( student loan, credit card, auto loan etc.)
- The credit limit and typically how much of the credit you have been using
- Amount of debt you have
- Has your credit report been subjected to hard inquiries?
The advantage of using credit karma like services and apps will enable you to learn about your credit scores as well as the credit report. When you keep a watch on the reports regularly, you would be able to understand which factor impacts your scores and device ways to improve your scores.
Credit scores and what it means
Nowadays, credit score is becoming an important number in one’s life like your bank account number or social security number. Apart from creditors and lenders who check your credit score to approve your loan application, it is important for you to check it too. This will help you know what the lenders and creditors would see when they check your credit score. You have a number of ways to learn about credit scores and using apps like credit karma who provide free services. Alternatively, you do have credit card issuers who make it available on your billing statement that you get online. You may also purchase your credit score from any one of the three major credit bureaus. If it is the first time you are seeking out your credit score, you would just get a number, which will have no meaning unless you know how to interpret or understand it.
The credit scores range between 300-850. 300 is the lowest score and 850 is the highest credit score.
- Below 600 – very bad score
- 600-650 – bad
- 650-700 – good credit
- 700-750 – very good credit
- Above 750- excellent credit
The high score means that
- You have managed the credits in the past properly
- Kept your balance manageable
- You have made timely payments
A low score means that
- You have had trouble managing credit
- You have accumulated high balances
- You have borrowed more than what you could afford to pay
- You have missed a lot of payments
Credit karma services
Credit Karma is 100%free. It will help you to get your squares from Equifax and Transunion. The scores, as well as the reports, are updated weekly. It will definitely help you to improve the credit scores by taking remedial action. By keeping a watch on the credit scores you would also be able to spot identity theft, if it happens, quickly.
Why are there differences in credit scores?
The reason that you have different scores sometimes could be due to one of these reasons which includes
- The lenders do not report to the credit bureaus
- They report updates to the credit bureaus at different times.
- The score also would be different depending on the lending situation. For example, a mortgage lender would use a different scoring model when compared to an auto lender.
Credit karma services
Credit Karma helps you access to credit scores. On the flip side, the credit scores are accessed by credit karma to suggest to you the credit products that are suitable for you based on the credit history. They are useful for you to access investment products like credit cards, loans, insurance etc. While the online personal-finance platform and matches you with tailored products that match the profile. The company would get compensated when these products are accessed or approved.
However, it is important to ensure that the security measures are good enough so that the personal information is not used in the wrong way.