A credit score is a number given to you by credit agencies that range between 300-850. The higher your credit score, the better shape your credit standing is in. Assigning the number is a complex process, but items such as your payment history, percentage of available credit used, how long you’ve had credit, types of accounts, and how frequently you applied for different forms of credit in the past two years are the primary components used to generate a score.

How do I know if I have a good credit score?

Credit scores are broken into different tiers. A score of 800-850 is considered to be “exceptional,” 740-799 “very good” (most people fall into this category), 670-739 “good,” 580-669 “fair,” and 300-579 “very poor.” You can learn where you fall in the range of scores by checking with companies you have a relationship that offers this service.

• Credit card companies
• Financial institutions
• Lenders

These companies will often allow you to check your credit score for free. If you don’t have access from one of these, you can buy your credit scores from one of the three major credit reporting companies: Equifax®, Experian®, and TransUnion®, or FICO and VantageScore (these two companies develop credit scores). There are also numerous companies offering free or fee-based credit scores, but always verify they are reputable before sharing personal information or paying any money.

How poor credit can affect your life

Poor credit can negatively impact your life in many ways. Your credit score plays a large role in your purchasing power. Essentially, it can make or break your financial outlook.

• Loans and approvals: Lenders use your credit score to determine if your application for a loan (or credit card) is approved or denied. It’ll also determine the interest rate you’ll be offered.
• Rental application: Landlords and property managers look at the credit scores of potential tenants as a way to assess risk. They might use it to determine if they’ll rent to you or how much deposit they’ll ask you to put down.
• Employment: Employers routinely do background screenings which often contain a credit screening to look for signs of negligence or irresponsibility.

If you have a poor credit standing, chances are higher you’ll be denied access to credit. Even if you receive an approval, you’ll most likely be offered unappealing credit terms. This can cost you thousands of extra dollars over the life of a car loan or for a mortgage to purchase a home.

Ways to maintain and improve your credit score

A healthy credit score is a good goal to work towards. People designated as having “fair” and “very poor” credit scores are considered to be subprime borrowers which makes access to credit difficult. To avoid landing in a low credit standing category, you should actively maintain your credit score.

• Pay your bills on time (or early) for at least six months.
• Ask your credit card banks to give you a credit increase (but don’t borrow against it).
• Don’t close any credit cards until you can boost your score.
• Make it a routine habit to keep tabs on your credit score so you can quickly identify any abnormalities (i.e. identity theft) that might drag your score down.
• Improve your credit by pursuing an alternative credit score (this doesn’t replace bad credit but some lenders may take it into consideration).

If your credit dips, be proactive and work to raise it back up.  Remember, you can also learn your overall credit standing and check for mistakes on your credit report by requesting a free report from Equifax®, Experian®, and TransUnion®. You are entitled to one free report each year from each agency.