Credit, creditworthiness, credit report, and FICO are all terms that may ring a familiar bell for you as it relates to your financial education and lifestyle planning. But what do they all actually mean for you and your financial goals? Credit scoring can be confusing and cause head-scratching on how it works. Common Trust is your go-to resource to illuminate credit-centric terminology, as well as reveal how to obtain good credit and what it means to have a good credit score. Establishing credit is an important barometer allowing you to achieve your financial and personal goals. As ever, Common Trust is here to help you recognize the value of having good credit and support your prosperity.
Credit Score & Credit Score Factors
A credit score is a rating of how reliable you are when borrowing money from a financial institution. Lenders use credit scores to determine the likelihood of repaying on time if given a credit card or loan. Your credit score is formulated on your accrued credit history and can range from 300 to 850. A good credit score is the access key to your financial well-being and creditworthiness. The higher your score is, the less you are viewed as a credit risk by lenders.
Your credit score is made up of key factors that formulate your total score. FICO (Fair Isaac Corporation) is the most widely used credit scoring calculator to generate an individual’s credit score and is based on several factors. The core factors that affect credit scores are:
- Types of accounts you hold and the age of these accounts, including the ratio of the limits on the card versus the balance owed.
- The total debt you hold and/or how many credit cards you hold, auto loans, mortgage payments, etc.
- Payment history and late payment history: On-time payments on your accounts help your scores, whereas missing payments can hurt your scores.
- Credit score activity: whether you’ve recently applied for or opened new accounts, it can affect your score.
These factors are indicators of your credit history that affect your credit score when it is calculated. Knowing your score also illustrates what you need to address in your credit history to increase your creditworthiness. When you monitor your credit, it also helps you keep an eye on how you can improve your score; remember that on-time payments can strengthen your score, whereas late payments can lower it.
A Good Credit Score & Why It Matters
Credit scoring occurs within a range of 300 and 850 to indicate creditworthiness. A good credit score is 690 to 719 on the scale commonly used for FICO scores. A score of 800 or above is considered to be an outstanding credit score. On average, most people have a credit score that falls between 600 and 750. The higher your score, the more confident creditors are that you are able to repay debts per the debt parameters. Creditors can set their own determinations for what is considered as good or bad credit when consumers apply for loans or credit cards.
A good credit score is essential to your future and what you want to accomplish personally and financially. Having a good score also determines if you are approved to borrow money and how much you can pay back with interest. In addition, a good credit score can help you get a credit card with a decent interest rate or even a balance-transfer card, an auto loan or lease, or a home mortgage with a favorable interest rate.
In summary, a good credit score can be the difference between qualifying for a home or auto loan or obtaining credit cards with healthy limits and interest rates. The relationship between a credit card and your credit score factors in the timeline you are paying off your card, and your bottom line score can impact how much you will have to pay in interest on your accounts. Additionally, credit reports/scores can even impact non-lending-related matters, such as whether a landlord will rent you an apartment. Some insurance companies also may use your credit score to help determine your auto, home, or life insurance premiums. Finally, credit scores matter to some employers who might review your credit when hiring or offering a promotion. In practice, though, a good credit score is the one that helps you get what you need or want, whether that is access to new credit in a pinch or lower mortgage rates. A good score is an important gateway to specific lifestyle achievements.
Common Trust’s MasterCard Credit Card
Paying attention to your credit score and maintaining its strength is a vital part of your comprehensive financial health. Common Trust’s Mastercard Credit Card is a card you can afford to carry and can help you start your credit journey towards excellent financial standing. Using a credit card enables you to build a good credit score when used correctly, and we are here to advise you on best practices.
We invite you to learn more about our exceptional Mastercard Credit Card, perfect for shopping, travel, and emergency use here.