Beginners Guide to Credit Scores

You've probably heard of credit scores, but how much do you know about how they actually work? If you want to learn more, we’ve got you covered. Join us in our beginner's guide to credit scores as we examine what they mean, how they affect you, and why they change!

What is a Credit Score?

A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. This score shows an individual's judgment when making decisions revolving around credit. Lenders use credit reports, along with other indicators to determine whether to offer an individual a credit product. They also play a role in what the interest rate and credit limit will be on that product. 

A Look At The Range

Credit scores typically range from 300 to 850. Within that range, scores can usually be placed into one of five categories: poor, fair, good, very good and excellent. You've probably heard of a FICO score. The Fair Isaac Corporation created this credit rating (FICO). Here’s how the FICO score range break down from 300 to 850:

  • 300 to 579 is considered poor

  • 580 to 669 is considered fair

  • 670 to 739 is considered good

  • 740 to 799 is considered very good

  • 800 to 850 is considered excellent

Checking Your Credit Score

A credit report is the most accessible and efficient way to keep track of your credit score. It reviews your financial records, and lenders carefully study them when assessing loan or credit applications. Where can you go to check your credit score? At Members Choice West Virginia Federal Credit Union members can easily check their credit score for free using Credit Sense through  NTouch24 Online Banking as well as within the MCWV App!

Credit Sense is a free, comprehensive credit score program that helps you stay on top of your credit. Credit Sense is designed to help you understand your current credit score, give access to your full credit report, provide credit monitoring alerts, show you how you can improve it, and see ways you can save money on new and existing loans.

Learn more about Credit Sense by clicking HERE!

How is Your Credit Score Built?

Credit scores are determined differently depending on the credit scoring method employed. Lenders can use any scoring model, although the FICO score and the VantageScore are the most often used. According to Experian, the following are the criteria that FICO analyzes when establishing your score:

  • Payment history (35%): Is an individual paying their bills on time

  • Amounts owed (30%): Your credit utilization rate is the full sum of credit and loans you use in comparison to your overall credit limit.

  • Length of credit history (15%): The total amount of time you have had credit for

  • New credit (10%): How many times have you applied and started new accounts

  • Credit mix (10%): Possessing many installment loans and open credit accounts, such as credit cards, car loans, mortgages, and personal loans

Do You Need a Good Credit Score?

Maintaining a good credit score takes some work, but it's critical for your financial goals. When you have a high or exceptional credit score, you will find it easy to rent an apartment, receive better rates on loans, qualify for more credit, vehicle, and more. 

The Disadvantages of Having a Bad Credit Score

A poor or fair credit score can significantly influence your whole financial situation, which could determine the kind of loans and products you are eligible for. According to the FICO scoring system, a poor score is between 300 and 579, while a fair score is between 580 and 669. For example, if you have a lower credit score you may noticed the following: These are three downsides of having a poor or fair credit score:

  • You qualify for less credit product options

  • You are subject to higher interest rates

  • Your required to pay a security deposit on things like utilities

Maintaining a Good Credit Score

When you've built or improved your credit score, the next step is to keep it up.  You'll want to start creating these basic routines to guarantee it stays in the good or exceptional range :

  • Bills must be paid on time and in full

  • Keep your credit utilization rate small

  • Limit your credit applications 

Summary

Your credit score may have a significant influence on how you live, but the best part is that you can take easy steps to boost and preserve it. There's not a great deal of mystery about what your score represents and how it's generated, and credit bureaus and card issuers have made it simpler than ever before for you to monitor your score daily, so you know where you are.



Loans are subject to credit approval. Additional restrictions may apply.

Whitney Hunt