Your credit score is a three-digit number that lenders use to assess your creditworthiness. It's one of the most important factors in determining whether you'll be approved for a loan, and if so, what interest rate you'll pay. A good credit score can save you thousands of dollars over the life of a loan.
**What's a Good Credit Score?**
Credit scores range from 300 to 850. A score of 700 or above is considered good, while a score of 800 or above is considered excellent. Lenders typically consider borrowers with scores below 650 to be high-risk, and they may charge them higher interest rates or deny them loans altogether.
**How Credit Scores Are Calculated**
Your credit score is based on five key factors:
* **Payment history:** This is the most important factor, accounting for 35% of your score. It measures how consistently you've made your loan payments on time.
* **Amounts owed:** This factor accounts for 30% of your score. It measures how much debt you have relative to your available credit.
* **Length of credit history:** This factor accounts for 15% of your score. It measures how long you've had credit accounts open in your name.
* **New credit:** This factor accounts for 10% of your score. It measures how often you've applied for new credit in recent years.
* **Credit mix:** This factor accounts for 10% of your score. It measures the variety of credit accounts you have, such as credit cards, loans, and mortgages.
**How to Improve Your Credit Score**
If your credit score is less than ideal, there are a number of things you can do to improve it:
* **Pay your bills on time, every time.** This is the most important thing you can do to improve your credit score.
* **Keep your credit utilization low.** This means using only a small portion of your available credit.
* **Don't open too many new credit accounts in a short period of time.** This can hurt your score by making you look like a risky borrower.
* **Dispute any errors on your credit report.** If you find any inaccurate information on your credit report, contact the credit bureau and dispute it.
* **Build your credit history.** If you don't have a lot of credit history, you can build it by getting a secured credit card or becoming an authorized user on someone else's credit card.
**The Importance of a Good Credit Score**
A good credit score can save you thousands of dollars over the life of a loan. It can also make it easier to get approved for a job, rent an apartment, or even get a cell phone plan. By following the tips above, you can improve your credit score and reap the benefits that come with it.