According to recently released data, the average credit score in the United States is 682. That’s great if you understand the importance of your credit rating. But, if you don’t, what does that number even mean?
682 is considered a “good” credit score by most lenders, but there’s so much more to know about this little number. How can you improve your credit ranking? Why do you need to even have good credit in the first place? We’ve got all the answers for you.
What is a Credit Score?
A credit score is a number that lenders use to determine your creditworthiness. And, sometimes, you’ll even find that employers, landlords, and quite possibly your partner even need access to your score.
What are they checking? To put it simply, they’re looking at a few various factors regarding your financial past in order to determine whether or not you’re eligible to take out more lines of credit. In short, they want to see if you pay your bills on time and are financially responsible enough to take on more credit.
Where do they get the information to determine your score? Credit reporting agencies compile data to determine your credit score. The three credit reporting agencies are TransUnion, Equifax, and Experian. That means you could have varying scores, as not all lenders and institutions report to all three credit reporting agencies.
The Equifax credit score ranges from 280-850, which is a little bit lower than the Experian range and your Float score, for example, which range from 300-850.
What Factors Affect a Credit Score?
As mentioned, there are various different credit reports you can obtain and each has its own range along with different ways in which they calculate the score. They’re not too different, but just different enough to possibly affect your score by a few points either way.
At Float, we use the Equifax credit score, and they look at the following factors to determine your overall credit rating:
- Payment history
- Used credit vs. available credit
- Types of credit used
- New credit
- Length of credit history
- Hard inquiries
Payment history and amount owed tend to hold the most weight. In fact, when your FICO score is calculated, those two together make up 65% of your credit score. Really, when it comes down to it, a lender wants to see that you have been able to make payments on owed accounts on time. And, they want to make sure you don’t already have large amounts of debt to pay off before lending you even more money.
Why Do You Need to Know Your Credit Score?
This is great and all, but if you don’t plan to take out an auto loan or apply for a mortgage loan to buy a house, then why do you need to know your credit score? Knowing your score is important for other things, too, such as applying for a rewards credit card, landing a high-profile job, and even, sometimes, getting approval to rent a home.
Not all employers will check your credit score. If they do, they’re actually only able to access your credit report. But, they want to see what lenders want to see, that you’re responsible. So, if you plan on applying for your dream job in the future, you’ll want to check your credit score in advance and make sure you’re working on improving it just in case they do ask about it.
What about landlords and credit checks? Usually, you have to provide pay stubs or other financial information to show that you make enough to afford rent wherever you’re trying to live. Rental credit checks are pretty common, and these types of tenant screening reports are used to determine whether or not you’re financially responsible enough to pay your rent on time.
What is a Good Credit Score?
This is a common question people have, and the answer is that it varies depending on the credit reporting agency you’re getting your report from.
At Float, our score range is as follows:
- NEEDS IMPROVING: 300-499
- NEEDS LOVE: 500-600
- GOOD: 601-660
- GREAT: 661-780
- OUTSTANDING: 781-850
Surprisingly, 37% of the US population has an EXCELLENT credit score. And, that’s something great to work towards. However, most scores fall between about 670 and 750.
How to Improve Your Credit Rating
Whether you don’t have any credit at all or are looking to improve your credit after a few years of missed payments and delinquencies, there’s hope for everybody. And, some of the tactics for improving your credit score don’t even involve opening more lines of credit.
If you’re in college or simply don’t have any credit history, try:
- Opening up a credit card optimized for college students or young savers
- Use the credit card for small expenses such as gas and groceries, then pay the bill on time
- Pay off any student loans on time (and contact your lenders immediately if you’re having trouble making payments to avoid missing one)
If you’re trying to rebuild your credit, try:
- Paying your bills on time; sign up for automatic bill pay or a financial app that reminds you when your bills are due if you have trouble keeping track of payments
- Don’t max out your credit cards; lenders typically want to see that you’re only using about 30% or less of your open line of credit
- Don’t apply for new credit cards unless it’s absolutely necessary
- Don’t close out unused credit cards as this can reduce your score due to a lack of open accounts
How to Check Your Credit Score for Free
Now that you know all about what a good credit score is, you’re able to set a goal and begin to work towards improving your credit rating. First thing’s first, though…you’re going to have to check your score.
How? Float gives you free access to your credit report in an effort to help you gain full control over not just your credit information but your financial health in general. And, we even let you connect with your friends and family so you can share an emoji version of your credit score with them and vice versa.
Is it possible to have fun while monitoring changes in your credit information? We think so. See for yourself and join Float today.