Credit Score: The Basics

What is the definition of a credit score?

A credit score is a number that runs from 300 to 850 and is used by creditors to determine the risk of a borrower when making lending choices. It depends on a number of criteria, including how much debt you have, whether you pay your payments on time, how many credit cards you have, and whether you have any overdue invoices, among others. Most financial decisions that involve credit score evaluations are influenced by your credit score. For example, receiving a loan or opening a new line of credit all involve a credit score assessment, and if you have a strong credit score, the person or firm may be more willing to deal with you.

What factors influence my credit score?

It may surprise you to learn that you have more than one credit score! Your credit score may differ depending on who supplies it, what data it's based on, and how it's generated. Equifax, Experian, and TransUnion, the three major credit agencies, may report varying credit scores based on whose creditors and lenders you work with a report to. Furthermore, multiple scoring models are used by credit bureaus and other credit scoring organisations. In general, your credit score is influenced by the number of accounts you have, the sorts of accounts you have, the amount of credit you have used vs. the amount of credit you have available, the length of your credit history, and your payment history. The weight of each component may differ depending on the scoring model utilised.

Will my credit score be harmed if I check it?

 

It's not a bad idea to check your credit score on your own. When you or a lender examines your credit score, your credit report will show a "inquiry." Soft inquiries (also known as "soft pulls") and hard inquiries (sometimes known as "hard pulls") are the two forms of enquiries.

Soft Inquiries

When someone checks your credit score, it is referred to as a soft inquiry, and it has no bearing on your credit score. Checking your credit score on a regular basis ensures that nothing is wrong, as indicated by a significant inexplicable shift in your score. Knowing your credit score before applying for a product will prevent you from incurring an unnecessary hard inquiry when applying for credit cards or loans that you know you will not qualify for.

Hard Inquiries

In the short run, hard queries can harm your credit score. They occur when a creditor seeks to examine your credit file in order to assess your risk. A hard inquiry will appear on your credit record for two years, but it will only have a temporary influence on your credit score. Following a hard inquiry, your credit score will initially decline, but with prudent credit behaviour, the damage will fade with time. A difficult question is sometimes unavoidable. In general, if you apply to different lenders for one loan to compare rates, you won't be penalised for having many queries on your credit record. Applying for many credit cards and a personal loan in a short amount of time, on the other hand, could indicate that you're looking for credit that you can't afford.