Credit Monitoring 101: Understanding The Basics And Taking Control Of Your Credit Score

Published on: April 4, 2024
Last Updated: April 4, 2024

Credit Monitoring 101: Understanding The Basics And Taking Control Of Your Credit Score

Published on: April 4, 2024
Last Updated: April 4, 2024

Taking control of your personal finances is important if you want to meet your goals and ensure that you stay in good health, financially speaking.

Knowing, understanding, and being able to monitor your credit score are incredibly important in this regard.

After all, your credit score is a direct representation of the health of your finances and your chance of getting approved for financing, loans, and mortgages.

What Is A Credit Score?

Your credit score is a three-digit number that represents how lenders see your reliability as a borrower.

A FICO credit score ranges from 300 to 850, but there is no single credit score attached to any one person.

Instead, there are three main credit bureaus in the US, as well as several smaller ones. These three bureaus are widely considered the best credit reporting agencies in the US:

  • Equifax
  • Experian
  • TransUnion

Though each credit bureau has its own credit score rating system, they consider the same major factors when setting an individual’s score.

Your FICO credit score directly impacts whether lenders will offer you credit, and what kind of interest rates you will be offered when you apply for a mortgage.

credit score report

What Is Considered A Good Credit Score?

Different credit agencies may have a different range for credit scores, but generally speaking, a ‘Good’ credit score is between 670 and 739.

If your credit score falls within this range, you will have a reasonable chance of getting approved for credit, and be more likely to get favorable interest rates on certain products.

Here is a general overview of how credit scores are classed:

  • 800 – 850: Excellent. You are very likely to be approved for most forms of credit, and most likely to be offered highly favorable interest rates.
  • 740 – 799: Very Good. You have a high chance of being approved for most credit and can be offered highly favorable interest rates.
  • 670 – 739: Good. You are likely to be approved for most forms of credit at an average interest rate.
  • Fair: 580 – 669. You may not be eligible for larger forms of credit or financing (such as a mortgage) and may be offered higher interest rates than average.
  • Poor: 300 – 579. Your credit options will be limited and you are very likely to be offered higher than average rates of interest.

Of course, if you have a Poor or Fair credit score, you can still get credit and financing, but some larger lenders may reject your applications, and you are likely to be offered higher interest rates than someone with a Good to Excellent credit rating.

What Factors Impact Your Credit Score

When agencies like Experian calculate your credit score, they consider your credit history and look at five key factors to determine your reliability and what you can afford. These factors, and how heavily they weigh on your score, are:

  1. Payment History (35%)
  2. Amount Owed (30%)
  3. Length of Credit History (15%)
  4. Types of Credit (10%)
  5. New Credit (10%)

The most important factors are your payment history and the amount you owe.

If you make all of your payments on time and keep your credit level affordable for your income, your credit score will be higher than those who miss payments and owe more than they can afford.

How much of your available credit you have used impacts this, too; if you frequently use more than 50% of your available credit, your credit score will suffer.

The length of your credit history is self-explanatory; those who have a longer history of making their payments are likely to have a better credit score.

However, the longevity of open-ended credit lines such as credit cards also has an impact. Having a specific credit card for many years can impact your credit score well.

The types of credit you have also impact your credit score. If you have bigger credit commitments, such as a mortgage and car loan, you will be likely to gain a higher credit score (so long as you are making your payments).

If you only have small loans, credit card debt, and a phone plan, however, your credit score may be lower.

Finally, new credit applications have an impact on your credit score. If you apply for many credit options in a short period, it can lower your credit score temporarily.

monitoring credit score

Ways To Monitor and Improve Your Credit Score

You can check and monitor your credit score by signing up for services such as Experian, but this is only one part of taking control of your credit score and financial life.

Once you know what your credit score is, you need to know how to improve or maintain it, so that you have the best chance of getting credit when you need it.

Here are some basic things you can do to improve your credit score:

  • Prove where you live by registering to vote.
  • Make your payments on time.
  • Try to lower the overall percentage of available credit you use. Ideally, use no more than 40% of your total credit on a regular basis.
  • Check your report for errors and ask for them to be removed. For example, if you used to have a joint account with an ex-partner and this is registered on your credit report, make the bureau aware that this is no longer your account.
  • Keep old accounts where you can.

If these steps do little to improve your credit score, you can also consider getting a credit builder card.

These cards often have low spending limits and high interest, but they can help you to improve your credit score fairly quickly.

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Written by Allison Langstone

Allison produces content for a business SAAS but also contributes to EarthWeb frequently, using her knowledge of both business and technology to bring a unique angle to the site.