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What Is My Credit Score and How Does It Factor Into Credit Cards?

When you’re dealing with credit cards, loans, and even mortgages, one of the things you need to be aware of is your credit score. This three digit number tells companies an awful lot about your ability to repay debts.

Your Credit Score

Your credit score is a number derived through different calculations that evaluates your creditworthiness. It is largely based on your credit history, including how many loans or credit cards you have, how you pay them, and other outstanding debts. Your score falls within a range between 300 and 850, with a higher score meaning that you are considered more financially trustworthy.

The FICO score is the most commonly used method of credit scoring. Scores above 700 are generally considered a good score, while scores below 640 are usually considered subprime credit scores. You can access your credit score through a variety of ways. Each of the major credit reporting bureaus will give you a free copy of your report once per year. Many credit cards also provide that information with your credit card, as well.

Factors Affecting Your Credit Score

A variety of factors affect your credit score. One of the most important things is your payment history. When you have a consistent history of making on-time payments, that is beneficial to your credit score. Missing or making late payments can have a negative effect on your credit score. If you’ve missed a couple of payments but start a trend of on-time payments and reducing your debt, your score will generally improve.

The types of credit you have will also affect your credit score. Having multiple loans and credit cards, eve if you are making regular payments can be detrimental to your credit score. You want to have a low utilization rate, meaning the rate between the total balance you owe and the total line of credit on all of your revolving accounts. If you have a lot of accounts, especially with balances, you will appear to be a riskier bet for a lender than a person with one credit card.
Other factors that relate to your credit score include the length of your credit history. The ages of your oldest account and your newest account are assessed to determine the average age of your accounts. Opening new accounts can decrease your credit score.

Another factor in your credit score is the mix of types and lines of credit. A healthy mix, including student loans and credit card debt is better than solely credit card debt.

How Does Your Credit Score Affect Credit Cards?

When you apply for a credit card, the issuing company will run a credit check on your account. The higher your credit score is, the more likely it means that you pay your bills and use credit cards and loans responsibly. In many cases, the higher your credit score is, the lower the interest rate on your new credit card will be. This can save you money, especially if you carry a balance on the card from month to month, which ideally you will not do. Paying off your credit card each month will also improve your credit score and supports the fact that you are creditworthy.

In Summary

There are a great deal of factors affecting your credit score. These numbers will affect the credit cards and loans that you may be able to apply for. In fact, having poor credit through using loans and credit cards irresponsibly may adversely affect your ability to get buy a house or have a low-interest car loan.