Your credit score is a three-digit number generated from several factors that indicates how you're doing financially. Essentially, it's a fingerprint, meaning that your score is unique to you, and reflective of your past and current behaviors in regards to how you handle money.
Read on to learn more about credit scoring, particularly Equifax credit scoring, the factors that affect your score, and how to improve your score.
What is a credit score?
Everyone has multiple credit scores. This is because there are three bureaus — Experian, Equifax, and TransUnion — and each generates your score slightly differently. It all depends on the gathered data and the weight of this information..
The most popular credit scoring models are FICO and VantageScore.
Credit scores are reported to Experian, Equifax, and TransUnion, all of which routinely engage in credit monitoring.
What is the Equifax credit score used for?
Equifax credit reports are educational and give consumers important information for their personal use. Banks and other lenders do not use your Equifax scores to determine your creditworthiness.
Nevertheless, an Equifax credit report can help you stay abreast of where you stand financially, which is crucial, especially if you want to buy a new home, make a down payment on a car, or go to college.
Equifax credit score ranges
Equifax credit scores range from 280 to 850. Essentially, this numerical value symbolizes your credit behavior.
Scores fall into five classifications: poor, fair, good, very good, and excellent.
A score of 280–559 is "poor," 560–650 is "fair," 660–724 is "good," 725–759 is "very good," and 760–850 is "excellent."
While there is no such thing as the "perfect credit score," having a "very good" or "excellent" score will open many doors for you when it comes to applying for loans and lines of credit. You will have more negotiating power as a borrower, and lenders are more likely to enter into business with you.
As of early 2021, the average score in the United States fell between the high 600s and the low 700s.
Equifax scoring differs from FICO and VantageScore, both of which range from 300–850 instead of 250–850.
Factors that affect your Equifax credit score
One: Hard inquiries. There are two types of credit inquiries: soft and hard. A soft inquiry is when you check your own credit score or request a credit report. This does not affect your score. Hard inquiries, on the other hand, do affect your score. This is when banks and other lenders check your credit. Multiple hard inquiries, especially within a brief period, will most likely decrease your score.
Two: Used credit versus available credit. Also known as credit utilization, this refers to your approved credit limit and whether you’ve exceeded it. “Maxing out” your credit cards and other lines of credit can severely reduce your score.
Three: Length of credit history. In other words, this is how long you’ve had credit accounts and, most importantly, how long they’ve been active.
Four: Type of accounts. The type of credit accounts you have also play a role in score calculations. While loans may not be ideal in terms of debt and repayments, having a mix of other credits, such as a mortgage and personal loans, for example, will positively impact your score.
Five: Payment history. Last but certainly not least, payment history is one of the most significant factors regarding your credit score. This refers to how you’ve repaid your credit over the years, whether it be credit card payments, loan installments, student loans, or mortgages, to name a few. Late or missed payments are influential here, too. Using the FICO score model, payment history accounts for 35 percent of your credit score.
How to improve your credit score
Tip 1: Pay your bills on time. This is arguably one of the easiest things you can do to boost your credit score. Not only will late or missed payments negatively affect your credit rating, but you will most likely face additional penalties and a higher interest rate too.
Tip 2: Pay off your debts. While this usually takes some time, making this a priority and paying off any outstanding debts as soon as possible results in a notable jump in your credit score. Be careful that you never borrow more than you need.
Tip 3: Keep your credit card balance well below the limit. Experts recommend keeping your utilization under 30 percent, therefore keeping your personal credit risk to a minimum.
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Tip 4: Apply for credit sparingly. Submitting a handful of credit applications can impact your score. And, once again, lenders will have to make a hard inquiry into your credit as well.
Tip 5: Monitor your credit reports regularly. You are entitled to a free credit score report from any of the three major credit bureaus once a year. It is wise to take advantage of this. If you do not know your score, you cannot take steps to improve it. You can also request a report through the Annual Credit Report site here.
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