taking notes on a book about loans

What is a Credit Score? Improve Your Credit With These Tips

Kimber Severance

Creditworthiness is a common factor in determining loan approval. So how can you improve your credit score to get the loans you need?

Luckily we have a credit score chart and some credit score tips to help you out. 

Credit Scores Explained 

Have you ever wondered how credit scores work? If you've never thought about it before, or if you're currently looking for loans for bad credit, then credit scores can seem complicated and hard to understand. But, it's actually very simple once you understand these credit score basics. 

The purpose of credit scores is to help lenders make loan application decisions quickly and easily. This helps the loan application process go faster and smoother for both the borrower and the lender. 

But what impacts your credit score? What determines someone's creditworthiness? Your credit score is mainly determined by the following items found in your credit history: 

  • Payment history 
  • Length of credit history 
  • Debts 
  • Current debts and loans 
  • Types of credit 

There are also important things to know regarding credit pulls. There are soft credit pulls and hard credit pulls. 

Soft Credit Pulls 

Soft credit pulls are just as they sound, softer. They tend to have less impact on your credit history, score, or report. They only appear on your personal credit report but won't be seen by businesses or lenders. 

A soft pull might be initiated by someone else, not by you. Soft pulls also tend to have little or no impact on your credit score. 

Hard Credit Pulls 

A hard credit pull is also just as it sounds, harder. They tend to have more impact on your credit history, score, or report than a soft pull. Hard pulls usually show up on your credit history for businesses and lenders to see. 

A hard pull is usually initiated by you when submitting some kind of application, usually for credit like a loan. Hard pulls also tend to have more impact on your credit score. 

Subprime Loans

Subprime and prime are terms that refer to the range of rates for a loan. 

Prime rates are some of the best loan rates, but they also come with more requirements to qualify for prime loans. 

Subprime rates are higher rates but are generally attached to loans that are easier to qualify for and come with fewer requirements for acceptance.  

What is a subprime loan? 

Subprime loans and subprime lending is known by many names. It can also be called near-prime, subpar, non-prime, or second-chance lending. Subprime loans are designed for customers who have difficulty qualifying for premium loans that have higher application requirements like high credit scores.  

If you are taking out a subprime loan then remember that your subprime credit report score is not the same thing as your FICO® score. Contact your lender directly for more details. 

You can request a free credit report with Clarity Services.

What is a Bad Credit?

A bad credit score will depend on the consumer reporting company you are using. There are several consumer reporting agencies and each lender might use a different agency to check your credit score.

Credit Score Chart

Equifax, TransUnion, and Experian are 3 examples of major credit reporting agencies a lender might use. Many credit reporting bureaus also have different credit score ranges and systems set up for different industries. 

Equifax Credit Score Range:

Equifax uses a number system from 300 to 850 to score creditworthiness. 300 is the poorest score and 850 is the best score.
Equifax Credit Score Chart
  • Poor: 300–579
  • Fair: 580–669
  • Good: 670–739
  • Very Good: 740–799
  • Excellent: 800–850

TransUnion Credit Score Range:

TransUnion uses a grading system from A to F to grade creditworthiness. This grading system is based on a number system from 300 to 850.
TansUnion Credit Score Chart
  • Grade A: 781–850
  • Grade B: 720–780
  • Grade C: 658–719
  • Grade D: 601–657
  • Grade F: 300–600

Experian Credit Score Range:

Experian uses a similar number range to Equifax.
Experian Credit Score Chart
  • Very Poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very Good: 740-799
  • Exceptional: 800-850

Remember that different lenders use different credit reporting agencies. Ask your preferred lender about where you should get your credit report from for the best results. 

What is a Good Credit Score? 

So how does someone get bad credit? Well, there are a few things that could be happening to give you a bad score. 

Some things that cause low credit scores is when someone . . . 

  • doesn't make on-time payments
  • they have more debt than they can afford
  • they default on a loan
  • or if they have filed for bankruptcy. 

When getting a loan for bad credit, these negative marks on your credit history may not matter as much. Otherwise, you'll want to fix these problems in your credit history before seeking a loan. 

These items decrease someone's credit score because they tell lenders that you might be at a higher risk of defaulting or making late payments on a loan if they decide to lend to you. 

Likewise, you can increase your credit score and your chances of getting the loan you want by fixing these same issues. 

  • Make payments on time
  • Keep your debt-to-income ratio at a safe level
  • Avoid defaulting on loans
  • Avoid bankruptcy

Taking full control of your finances, budgeting effectively, and preparing for financial emergencies ahead of time can all help you avoid these negative credit marks and keep your credit score high. 

How to Improve Credit Score

Even before shopping for a loan, it's a good idea to check your credit history for yourself. That way you can have an idea of the kinds of loans you can qualify for before you start applying. 

Checking your credit score yourself, before you apply, can also help you catch any mistakes on your credit history so those can be corrected before the lender pulls their own credit check. 

Here are some of the main steps you want to take before taking out a loan:

Step 1: Get a copy of your credit history and do a self-audit

Go through your credit history and make sure there aren't any errors that need correcting before you start applying for loans. 

You should check your credit report carefully for accounts you did not open, inquiries from creditors you didn't initiate, and any other errors or discrepancies you might find. 

You can get a credit report for free at www.annualcreditreport.com or by calling 1-877-322-8228, toll-free.

If you find something on your credit report that you do not understand, call the credit agency.

Step 2: Make sure nothing is missing on your credit report

If you have an instance that should be helping boost your credit and you can't find it on your credit report, contact the credit reporting agency to get it sorted out. 

Certain things help give people good credit: 

  • Making payments on time 
  • Paying off a loan 

When you have good credit actions in your personal finances you want to make sure those actions are being counted in your favor on your credit report. 

They are all instances that will boost your score and show potential lenders that you are a low-risk customer who knows how to pay their bills on time. 

Credit can be your friend or your foe depending on how well you use it: 

Make payments on time, make sure on-time payments are being counted on your credit history. 

If you need help establishing a good credit history you may consider paying for groceries each week with a credit card. Then at the end of the week pay off the credit card balance. 

In Conclusion,

It's necessary to use credit to build credit, but if you aren't careful, credit use can also be the very thing that weakens your score. 

But when you know how to use credit to your advantage, you can build up a high credit score and watch as more financial opportunities open up to you.