Good Credit: What it is and How to Achieve It

If you have a credit card, chances are you’ve heard of “good” and “bad” credit. The problem is, knowing exactly what this means for you can be hard to see, especially if you’re young and you have your first bank account. If you think you might have a low credit score, FinanceMarvel can connect you to resources that will help. But if you’re still trying to figure out what exactly credit is, take a look below.

What is credit?

Credit is a way that money lenders measure how trustworthy you are when it comes to borrowing money. This measurement, your “score,” runs on a scale from 300-850. Your score in the “bad” (less than 500) range means that banks and other lenders will be much less likely to lend you money. Having a higher number, in the outstanding range, means that more people will approve your loans.

Having a bad score means that you either don’t pay your bills on time, or you don’t pay them at all. It is also determined by public records, which include things like bankruptcies and legal judgements.

What does this mean?

If you have bad credit, lenders are less likely to give you money, because they know the probability that you will pay your loan on time is low. If anyone does decide to lend money to you, you may have increased interest rates because they are compensating for the risk of lending to you.

Though you may not be getting loans anytime soon, it can affect many more things than just that. Insurance companies often look at your financial information to determine your insurance rate. Cell phone and utility providers can also look at it and charge a high security deposit. You may also be denied to rent an apartment or home if you have a low enough score.

So how do you keep up a good reputation with lenders?

Pay your bills

The first must for a good credit score is paying your bills on time. You should also try to pay more than your minimum payment, because that will help you improve your score and ultimately have less interest.

Always look at your reports

Every year, you are entitled to a free report from any and all of the three major credit bureaus. There is a possibility there may be mistakes on these reports. Always read through them to make sure they are accurate. Many other websites and companies can tell you your information any time of the year, free of charge, as well.

Don’t close out your credit cards

You may want to close your accounts after you pay them off, but this can ultimately hurt your score. This is because it reduces your overall available spending limit, and reduces the average age of your accounts. This is a big factor in determining your score.

Get a secured credit card

If you already have a low score you need to get up, consider getting a secured credit card. This will allow you to deposit money into the account, and this amount will become your spending limit. If you pay your bills on time, you can earn your deposit back and increase your overall score.

In conclusion

There are many companies that use credit scores to determine the loans you will be able to receive and the insurance prices you can get. If you plan correctly and follow these steps, you will be able to improve and maintain a good score, and help yourself out financially. There’s no need to panic—anything can be improved with planning and patience!