How One Three-Digit Number Affects Your Life

Your credit score may seem like just a three-digit number, however, the reality is it can work for you or against you. 

What Are the Determining Factors the Credit Reporting Agencies Use? 

There are three main credit reporting agencies: Transunion, Equifax, and Experian. Each of them uses a number of factors to determine your overall score. The amount of money you owe to lenders, your debt-to-income ratio, payment history, age of credit, types of credit and inquiries all play a role in producing the final number. 

What's a Good Score? 

Your credit score can range from 300 to 850. However, in order to have a good score, banks prefer your score to be between 661 and 850. If your score is within this range, you will have an easier time getting approved for most types of loans, and at a lower interest rate. In addition, if you use a company like LendingClub.com they will search for the best company offering the lowest rates so you'll end up paying less when borrowing money versus someone with a poor score. 

A Poor Credit Score 

A poor credit score, less than 600, will have a negative impact on your life. It will cost you more for a mortgage or a car loan, and in some cases even prevent you from acquiring a loan at all. A poor credit score also causes you to pay higher interest rates on loans and credit cards. Additionally, a poor score can make renting a home or an apartment difficult and when you need utilities turned on, companies will want a large deposit. But, it doesn't stop there, insurance companies now use your credit score as a basis for providing coverage and many companies use it as a determining factor when hiring new people. 

Ways to Improve Your Score 

A few late payments or a high debt-to-income ratio can really affect your credit score. Unfortunately, it takes just a month or two to destroy your credit and many months, if not years, to bring it back up high enough to reach a good standing. Thankfully, there are ways to slowly improve it. Going forward it is critical to make all of your payments on time. If this means doing without the extras or taking on a second job, it's worth it. If you have excessive debt compared to what you make each year, work towards reducing your debt. It's also important to keep the credit cards opened the longest, to keep your age of credit strong. 

Budgeting 

Many people get into financial difficulties due mainly in part to reckless spending habits. On impulse, they buy something without giving much thought to how they will pay for it. Over time, this is the perfect way to rack up tons of debt. The good news is that you can establish a budget and if you stick to it, it will do two things. First, it will allow you to see the amount of money you owe out. And, secondly, it identifies what you spend your money on. By creating a budget you'll become smart with your money and even learn the importance of tucking some away for an emergency. 

Your credit score is a three-digit number that affects every aspect of your life. A good credit score will open the door to endless lending possibilities both for business and personal use. However, if you have a poor score, banks and other lenders few you as reckless and irresponsible, and ultimately as a bad investment. Luckily, your score is not a fixed number and there are a number of ways to move it in an upward direction.