When you apply for credit, your prospective lender assesses the risk you pose as a borrower. Risk assessment is important to lenders because it helps them determine whether applicants are likely to pay them back as agreed.
One of the tools lenders use in their decisions is a credit score. A credit score is a three-digit number based entirely and exclusively on the information found on your credit reports. When you have a higher credit score, lenders view you as a less risky borrower. Conversely, lower credit scores indicate elevated credit risk.
Because your credit scores are a product of the information on your credit reports, for you to improve your scores you will need to first improve your credit reports. Some consumers have poor scores because of negative information on their credit reports, such as late payments, defaults or collections.
For those consumers, the journey to higher credit scores will take longer because that type of negative information can remain on your reports for up to seven years.
The best ways to improve your credit scores going forward, whether or not you have negative information on your credit reports, is to make all your debt payments on time—every time. Once the existing negative information starts to age and is eventually removed from your credit reports, you'll be well on your way to better scores.
If your credit scores aren't as high as you'd like because of excessive credit card debt, then the news is more optimistic. As soon as you are able to pay down or pay off credit card debt, your scores will likely improve because of the reduction in the highly influential credit utilization ratio, which considers your credit card balances relative to your credit card limits.
Credit scores are used by almost all lenders for almost all credit-related products, and are certainly central to the decisions made by mortgage, credit card and auto lenders. FICO® and VantageScore credit scores are used billions of times every year and continue to be a common tool for lenders during the application process.
Not only is it a good idea to check your credit reports and credit scores often, but it's also in your best financial interest to improve your credit reports so your credit scores will benefit.
Start tracking your Credit Score for free HERE
