Are you a good borrower? Do you pay back your loan payments and credit card on time? If you do, you might have a high credit score. 

But first, what is a credit score? 

A credit score or credit rating is a prediction of your credit behavior on how you pay your loans back on time. It is based on your information from the credit reports. 

It is a number that determines the borrower’s creditworthiness that ranges from 300 to 850. The higher the score, the more likely for you to get approved for loans at a better rate. 

Normally, they will base the credit history on your: 

• Payment history
• Number of accounts you have
• Existing unpaid debt (if there is any)
• Amount of the available credit you’re using
• New applications for credit 
• Open loan accounts and how long
• Debt sent to a collection, foreclosure, or bankruptcy 

Why Is Credit Score Important?

A credit score helps banks, lenders, and companies know if you can pay the loan on time. It is the key to helping lenders to decide if they will offer credit and the terms to be agreed upon. 

Based on reports, lenders will decide if you’re worthy of the loan or not. Meanwhile, financial companies, such as banks, will use the credit score to decide whether they’ll offer you a credit card, mortgage, auto loan, and other products. They will also determine the interest rate and the credit limit you will receive based on your capability to pay. 

The credit score will depend on the data used. It will differ based on the scoring model, which will be determined by the type of loan product as well as the source data that was used, and the day when it was calculated. 

As mentioned above, the factors used to calculate the credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts or not.

FICO also known as Fair Isaac Corp. created a credit score model and is used by financial institutions as a standard for giving loans. You can get a free annual credit report each year from credit bureaus. Some of the agencies that dominate the market are Experian, Equifax, and TransUnion. They collect, analyze, and disburse consumer information in the credit markets.

How Can You Improve Your Credit Score

When you pay your loans, the information on your credit report changes. Your credit score changes every time you pay on time or not. There are some ways where you can improve your credit score.

• Prove Where You Live – Submit bills that are under your name and the current address you’re staying. You can still do this even if you’re in a shared accommodation as long as the address is right.
• Build Your Credit History – Start by purchasing a small number of items using your card. You can also save enough money on your account, this way your banks may recognize your account and will offer you a credit card. 
• Pay On Time – Missed payments can affect your credit score. You can try avoiding this by automating your card payments. You can never miss a payment with these as it will automatically pay the debt on the date you set.
• Spend Within Your Limit – Swiping your card until you reach your max is a big no-no. A lower percentage on your limit is better than maximizing it. The lower the percentage, the better and will increase your credit score as a result. Always pay your balances in full each month so that it won’t affect your credit ratio. 
• Monitor Credit Files For Fraud Activities – With modern technology nowadays, fraudsters and scammers can have their way of accessing your personal information. They could take out credit in your name without you being aware of it. So, if you see an activity you didn’t do, you can report it. 
• Manage Payments Through Installments – If you purchase a big amount you can split your payments through installments. This is a good way to keep up with your monthly dues and your budget intact.

You can also raise your score by enrolling in services that include payment information, such as bills (rent payment and utilities payment) that are not included in the credit scoring. Having a good record can help raise your credit score quickly as long as you pay them on time.

Good Credit Score To Have

A good credit score is determined by the lenders. It will range depending on the credit score modeling. Credit scores range from:

• 580 to 669 are considered fair 
• 670 to 739 are considered good
• 740 to 799 are considered very good. 
• 800 and above are considered excellent. 

Limiting your credit applications is also one way to keep your credit score healthy. Applying for credit frequently can make lenders think that you’re overly reliant on credit. Each application will have a record and will be reported to the company or lender you are trying to apply for. So, it's safe to have one or try to space out any applications. 

Avoiding defaulted accounts as it can also have a significant impact on your credit score. This occurs when your relationship with the company has broken down because you’ve missed several expected payments.

Borrow what you can only afford. You don’t need to borrow a sum of money if you think you can afford to pay it later on. Getting into trouble with debt can lead to you being harassed by the lenders or at worst threaten your life. These will also stay on your credit report and will have a significant impact on your credit score. 

What Are The Benefits Of Good Credit Score?

A high credit score means that lenders, banks, and companies see you as a lower risk. Therefore, having a big chance of approving credit. You can get a better chance for a credit card, mortgage, and loan approval. You can also have lower interest rates and better terms that can save you money. Higher credit limits can have a significant impact on your financial life. 

Having an excellent credit score offers tons of benefits so before you make any financial decisions, such as borrowing a huge amount of cash from banks or lenders, be sure to weigh its pros and cons. Nonetheless, you can always seek help from professionals so you can come up with informed decisions.