You need a credit score if you’re looking to buy a car, apply for a credit card, or even rent an apartment. But what exactly is a credit score, and how does it work?

In this guide, we’ll explore the ins and outs of how credit scores work and what you can do to build good credit.

First, let’s delve into the different types of credit scores. Usually, you’ll see scores ranging from 300 to 850. It is the FICO score model, which is the most commonly used.

And one thing is always true: keeping a high credit score is always positive. Generally speaking, a score of 700 or above is considered good.

Other credit scoring models, such as VantageScore, may use a different range of numbers, but they are not drastically different from the FICO score.

It’s important to note that each agency may calculate your score differently based on the information they have on file.

So, what factors contribute to your credit score? This is the first thing to know if you’d like to learn how credit work from the begining.

Payment history is the most important thing when it comes to credit. It is responsible for 35% of your FICO score.

This means that paying your bills on time is crucial to building good credit. And we’re talking about all of your bills, including rent, electricity, internet, school, etc.

Other factors include your credit limit and how much of it you’re using, the different types of credit lines you have,  when you’ve requested new credit, and how long you’ve been using it.

While these factors carry different weights, they all matter regarding your overall creditworthiness.

Now, let’s talk about some strategies for building good credit. Even if you do not understand exactly how the number is made and how your credit work, you can learn how to improve it!

First and foremost, pay your bills on time. This is the single most important thing you can do to maintain good credit.

Put your bills on auto-pay so that you won’t forget about them. Also, make sure to keep a budget and don’t waste the money you’ll need to pay your essential bills. 

Second, keep your credit utilization low. Ideally, you should aim to use no more than 30% of your available credit at any given time.

A good way to do this is to keep paying your credit card balance after every purchase. Use your credit card as if it is a debit card.

Thai works to keep a low utilization and avoid missing your payment date.

Third, diversify your credit. Having a mix of credit types, such as credit cards, student loans, and car loans, can help improve your credit score.

After all, your credit card might not be the best option to pay for every purchase. Consider a personal loan if you have a bigger debt to pay or want to make a big purchase.

Credit cards can charge you a higher APR than some personal loans.

Lastly, avoid opening too many lines of credit simultaneously, as it can appear like you’re overextending yourself financially.

Think about the message it will send to credit companies. They will be suspicious about the reason why you’re so desperate to get a credit card.

Make your research on the credit cards you’d like to apply. Check the eligibility criteria, and do not apply for credit cards you can not get approved.

It’s not about being pessimistic – it’s about being reasonable! do not apply for a premium travel credit card with VIP benefits if you have a fair credit score.

Also, many credit cards allow you to pre-qualify and check your approval odds before going through the credit check that will stay in your credit reports.

Maintaining good financial habits is essential for building credit. But you should also get a credit monitoring tool to take a look at your credit reports.

 It’s also important to check your credit report regularly to ensure that all of the information on file is accurate and up-to-date.

You have the right to demand one free credit report per year. And you should use this opportunity and check your reports whenever you can!

The importance of checking your reports is to detect any possible fraud that occurred in your credit accounts. Don’t let your credit score get low because of it!

Understanding credit scores and building good credit takes time, patience, and discipline. But it will be worth it!

Just like everything in life, there is always time to educate yourself and improve your knowledge. Moreover, everybody needs to learn about finances.

Just remember that paying your bills on time, keeping your credit utilization low, and diversifying your credit are the key ingredients to a strong credit score.

By following these simple steps, you’ll be on your way to securing better interest rates on loans, getting approved for credit cards, and more.

Don’t let your credit score hold you back – take control of your finances today!