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Did you know that achieving a higher credit score can literally save you thousands of dollars over a lifetime in lower interest rates? Also, by having a higher credit score you could benefit from accessing higher lending amounts providing you with more purchasing power for those big-ticket items down the road such as a new home, work truck, commercial building etc.
In this article, we’re going to explain what a credit score is, how it’s calculated and some simple steps you can take to increase your score.
What, exactly, is a credit score?
It’s a numerical value between 300 & 900 that represents your creditworthiness. It is based on information from a credit report, which is a record of your credit history. Your credit score is used by lenders, landlords, and other entities to help determine the risk of lending you money or extending your credit. Ultimately, a credit score will help a lender determine if you will pay your mortgage, rent or credit card bills on time.
How are credit scores calculated?
A credit score is calculated using information from a consumer’s credit report. The credit report contains information on a consumer’s credit history, including their credit accounts, payment history, and outstanding debts. The credit score is calculated using a proprietary algorithm that takes into account various factors, such as the length of credit history, the types of credit accounts, and payment history. The credit score is then represented as a three-digit number, with a higher number (700 and above) indicating a better credit score.
Steps to increase a credit score:
If you’re just starting out, your credit score could be low, and you may be wondering how to build it up. Here are a few ways you can build a higher credit rating:
- Get a low-limit credit card and pay the balance owed monthly.
- Keep your credit card balances low as high balances can indicate that you may be struggling to manage your debt, which can impact your credit score.
- Make sure to pay your bills and debts on time. Late payments can have a negative impact on your credit score.
- Avoid having too many credit accounts open at once which can have a negative effect on your credit score.
- Lastly, be patient, building a higher credit rating takes time and consistency
It is important to pay attention to your credit score as it can have a significant impact on your financial life. At North Peace Savings & Credit Union, we are here to support you in achieving your financial goals at every stage of life
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