FAQ: How Important Is It to Have a Healthy Credit Score?
You hear so much about credit scores, but how important is a healthy credit score, really?
It depends on what your plans are within the next one to five years. If you know you’ll need a car within the next year, your credit score is important. If you know you want to buy a house in five to 10 years, your credit score is important, even now. It’s much easier to keep a good credit score than to try and bring one up.
Learn more about your credit score and why it matters.
What Does It Mean to Have a Low Credit Score?
A low credit score is considered anything under 580 on a scale of 300 to 850. When people have a credit score this low, it is the result of having a bad payment history on credit accounts, the amount of credit that they have open at any given time, how much available credit has been used, and how much credit they’ve applied for.
If you have a low credit score, it can affect you in numerous ways.
Depending on what your score is, it may prevent you from being able to open any kind of credit accounts. If you can get credit, you may be subject to higher interest rates and fees, and you may not be able to get a credit card that offers certain perks, like cash back and travel miles on purchases.
The problems you can experience from having a low credit score are not limited to missing out on approvals for credit accounts or getting good interest rates and deals, however.
In some cases, bad credit health can actually limit your job opportunities, as well as prevent you from being able to get an apartment. Even cell phone carriers may not allow you to open an account if you have a low credit score.
What’s the Lowest You Can Get on a Credit Score?
The lowest credit score you can get is a 300.
Although having a credit score this low can certainly be detrimental to you because it limits your opportunities to get credit and other things you may need, that doesn’t mean you’re doomed forever because of it.
There are several ways you can improve your credit score, such as paying all of your bills on time, paying down the debts that you have, and taking the time to build a good credit history by obtaining a secured credit card.
In addition, you should check your credit reports and monitor them to ensure there are no errors on them because they may cause your credit score to be lower than it actually should be.
Which Credit Score Matters Most?
Although you have credit scores from the three major national credit bureaus — TransUnion, Experian, and Equifax — in the majority of cases, lenders will use the score that is a composite of all three, the FICO score, to make its decisions on your level of creditworthiness.
This is because the FICO score gives a more complete insight into your credit history. In some cases, not all of your information is reported to all three credit bureaus, so by pulling one of your credit reports, a lender may not see all of the positive and negative items that can help them assess how much of a risk you may be.
What’s the Average Credit Score?
The average credit score for consumers in the United States is around 710, which is characterized as a good score by credit bureaus. However, this average may be higher or lower depending on what state you live in. For example, Vermont has a higher average score at 721, while the Georgia average is significantly lower at 674.
Also, average credit scores vary by age. Not surprisingly, older generations have higher credit scores with Baby Boomer and Generation X consumers scoring 736 and 699 on average respectively. Millennials have an average score of 680, and Generation Z’s average credit score is 674.
