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Your credit score might seem like an insignificant number, but it holds a lot of power. Your score not only dictates whether you’re approved for a loan, but how much you pay in interest. Your credit score can also determine whether you’re approved to rent an apartment, how much you’ll pay in utilities, and even if you get hired for a job.

The good news is, if your score is low, there are ways you can improve it. From using a secured credit card to becoming an authorized user, you can take steps right now to achieve a better score. With that said, the most important part of improving your score is knowing how your credit score works. This article shares everything you should know about your credit score.

#1. How Can I Build My Credit Score?

While building your credit score takes time, it’s not impossible. The good news is that there are several ways for you to go about it. One popular option is by using a secured credit card. These cards work like traditional credit cards, but they require a cash deposit equal to the credit limit. This deposit works as a safeguard for the issuer. If you don’t pay your bill, the issuer can take what you owe from the deposit.

There are also credit builder cards that work similar to secured cards. These help people build credit from scratch or improve their existing credit. These cards are often an alternative option if you’ve been denied other credit cards.

Another great way to build your credit score is to become an authorized user. An authorized user is added to a credit account by a primary cardholder and is able to use the card as normal. By doing this, the authorized user can piggyback off the primary cardholder, improving their credit score.

#2. What Is a Credit Score?

A credit score is a three-digit number used to predict how likely you are to pay off a loan. Whether applying for a mortgage or a new credit card, your credit score determines whether you get approved, your interest rates, and your credit limit. Most landlords will even review your credit score before letting you rent an apartment.

It’s safe to say your credit score is very important. The higher it is, the easier it’ll be for you to buy a house, lease a car, and so on. A low credit score, on the other hand, can keep you from getting approved. And even if you are, you’ll most likely end up paying incredibly high-interest rates.

Many people don’t realize the significance of having a good credit score until it’s time to apply for a mortgage or credit card. Don’t wait until then. Regularly check your credit score, and do your best to keep it on the higher end.

#3. How Are Credit Scores Calculated?

Each creditor has its own definition of what constitutes a good and bad score based on the credit score model they use. With that said, the ranges don’t typically vary too much. Generally, a poor credit score is anything below 579. A fair credit score is between 580-669. A good credit score starts at 630, with an exceptional score being anything over 800.

Your credit score is calculated by five important factors. Your payment history, which focuses on whether you pay your bills on time, makes up 35%. Your credit utilization ratio, which is determined by dividing your total amount of debt by your total available credit, makes up 30%. How long you’ve been building credit makes up 15%. Finally, how diverse your credit portfolio is and how many new accounts you’ve opened make up 10%.

Being aware of these percentages can help you build your credit score. For example, let’s say you have a history of paying your bills late. That could be the cause of your low credit score. Being aware of how important payment history is, allows you to see that it’s a habit to work toward changing.

#4. How Often Should I Check My Credit Score?

There’s a common misconception that it costs money to review your credit score, and looking can potentially lower your score. That’s not necessarily true. You can request a free copy of your official credit report from each of the three main agencies once a year. You can also utilize free credit score checker options like Credit Karma.

Every time you check your score it’s considered a “soft inquiry.” This type of inquiry won’t impact your score. A hard inquiry, on the other hand, can lower your score, but this is typically only done by lenders and credit card issuers. So, go ahead. Check your score.

Keep in mind, though, you don’t have to check your score every week. This is especially true if nothing has changed on your end that could impact your score. However, if you’re working to improve your score, it’s a good idea to review it consistently to ensure there’s change.

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#5. Why Does My Credit Score Matter?

As mentioned above, a low credit score can make your life harder. Not only can it cause you to pay more in interest fees, but potentially miss out on financial opportunities.

Believe it or not, lenders aren’t the only ones who check your credit score. Your landlord will also review your score before accepting your application. Even if you make enough to afford the rent, your low credit score could keep you from your dream apartment.

Utility companies also review your score before setting up your service. If your score is low, there’s a good chance they’ll reject you or force you to pay a deposit as a safeguard. Do you know who else checks your score? Future employers. Yes, you read that right. Some employers require workers to have a certain credit score before offering them a job. While this isn’t something all employers do, there’s a chance your score could dictate whether you get hired.

The information above can help you better understand your credit score, so you can hopefully improve it. But remember, it takes time to raise a credit score. That’s why it’s important to be patient and use the tips above to guide you.

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