It is common knowledge that having a good credit score is important. However, what defines a “good” credit score and a “bad” credit score?

Your credit score is an amount that can range between 330 and 850, the higher the score, the less risk you represent to creditors. With a number closer to 850 there is a better chance of creditors offering lower rates and special deals, while with a score closer to 330 there is a much greater chance that you will either be hit by higher interest rates or not be able to qualify for credit or loans at all.

How does a credit score work?

The higher your score the better your credit health will be, which will be an advantage when applying for a home improvement loan or any other loan, making it easier for you to borrow money at lower interest rates. The lower the score, the higher the risk which then influences the outcome of the credit application.

By managing your credit profile effectively, you can ensure your image and profile is viewed favourably by lenders or other organisations. A bad credit score would mean the exact opposite of this and result in almost no financial institution willing to offer you a loan.

Credit providers take into account your credit history, your score and creditworthiness and these factors are a function of your payment history, amounts owed, length of credit history, types of credit used and the amount of new credit requested. Credit can be both a ladder and a slide when trying to climb in the financial world depending on how you manage it.

A credit score is affected by the following:

• Missing payments or not paying on time.
• Too much debt
• Negative information like a court judgment taken against a consumer’s name (commonly known as blacklisting).
• Length of credit history.
• Account application and enquiry activity – within a short period of time, how many account applications the consumer submitted and how many new accounts you opened.

How to improve your credit score

• Regularly checking your credit report to confirm all the details are correct.
• Making sure you make payments on any outstanding credit accounts on the due date.
• Consider setting up regular automated payments rather than doing manual payments.
• If you have too many old, unused credit accounts, consider closing them.

Sources: BusinessTech