When you apply for a loan, credit card, or rental apartment, the lenders (or the banks) assess how likely you are to pay them back using your credit reports and scores. Your credit report holds an in-depth report of your past use of credit, which is then calculated into your credit score. If your credit score is good, you’re more likely to get high risk loans.
Credit Score
Your credit score is the number lenders will use to evaluate whether you’re a safe or a risky customer. It is calculated from the information in your credit reports. FICO score is the most commonly used credit score that is used for credit cards, car loans, and other such products.
Here are some important factors that are considered when managing the credit score:
- Repayment history: whether you’ve ever paid late, or have derogatory marks.
- The money you owe compared to your credit limits
- How often you’ve applied to credit
- The types of credit you have
FICO’s credit score range is from 300 – 850, where scores of 690 and above are considered good, and scores above 720 are considered excellent.
Whenever you apply for a loan, your lender checks this score to determine your eligibility. It’s a good idea to monitor your score if you’re looking to build your credit, or hoping for a loan in the future.
Credit Report
Your credit report is what leads to evaluating a credit score. It’s a list of all your credit and payment history. These reports provide in-depth detail of your accounts, and how good you have been at paying outstanding dues. Any negative remarks and information like bankruptcies will appear on this report as well.
If you don’t have credit accounts, you probably don’t have credit reports either. It’s crucial to establish a good credit history as it will reflect your eligibility for loans, rentals, credit cards, and more.
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