You’re not alone if you checked your credit and think your score could be a little higher.
Experian found that the average American has a 675 VantageScore credit score. While that’s the highest average score since 2012, it’s still in the “fair” range rather than good or excellent ranges. And the higher your score, the better your borrowing rates and terms tend to be—and the less money you’ll have to repay later.
So, what can you do to increase your scores? We’ll jump into a few tactics soon, but first, let’s take a quick look at how credit scores are created.
There are three primary consumer credit reporting companies in the United States. They are Experian, Equifax, and TransUnion. These companies collect and are sent data on hundreds of millions of consumers, and they organize all the information to create and sell credit reports.
A credit-scoring model takes the information in a credit report and spits out a number that represents the likelihood that the person will fall behind on his or her bills.
To be sure, a credit score isn’t a comment on your character, even if it can feel like it, but simply a math model. It may also be a narrow way to judge your ability to repay a loan, and lots of companies are trying alternative methods. But a credit score remains one of the most popular measuring stick.
Generally, credit scores range from 300 to 850, with a higher score indicating that you’re more likely to pay on time. (I.e., a higher score is better.)
FICO and VantageScore are two of the largest credit-scoring agencies in the U.S., and each company makes multiple credit-scoring models. When a creditor, landlord, or you check your credit, the score can vary depending on which credit-scoring model is being used and which credit report it’s based on.
However, you generally don’t need to get caught up in the specifics of how scoring models differ. For the most part, the actions you can take to increase one score will help increase all your scores.
Building an excellent credit score can take time but there are a few things you can do today and in the next few months to improve your credit scores.
You can monitor your progress by tracking your scores, and many banks and credit card issuers will give you free access to a credit score based on one, or more, of your credit reports.
Before you apply for a credit card or personal loan, you may want to find out which credit score the creditor uses and see if you can check that score. When you apply, the company may review your credit report and the resulting hard inquiry could hurt your score a little. Knowing if you have a high enough score to qualify can help you avoid an unnecessary hard inquiry. If you don’t think you’ll qualify, it may be best to continue building your credit and try later.
While a credit score can be an important component of qualifying for a loan or credit card, and a higher score can help you get lower rates and better terms, a score is often just one of many factors that creditors consider. Others may include your credit history, your monthly debt payments versus your income (i.e. your debt-to-income ratio), and your history with the company.
There are hacks and tactics that might help boost your scores. But if you can take control of your finances, always pay your bills on time, and only use a small portion of your available credit, your scores will usually reflect your money mastery.
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.
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