What is a credit score and why does it matter?

A credit score is a numerical ratio, typically a 3-digit number (usually 300–850), representing a person's creditworthiness. It guides insights into the perceived ability of a person or organization to fulfill their financial commitments, based on an analysis of their credit history and current financial circumstances.

 It is used by lenders to determine loan approval, interest rates, and credit limits. A higher score usually means better terms and financial trust.

Factors affecting credit card score

Your payment history.

 Basically, this revolves around how well you make payments and debt repayments. Do you pay on time, and do you make the stipulated payments required? Late, missed, inconsistent, or incomplete payments affect this score negatively.

 It usually contributes to roughly 35% of your credit card score.

Amounts owed/current debt.

 This is how you utilize your credits, and it is the most important thing to look out for. To seem palatable, do not blow through our credit like you've hit a jackpot. Try to keep your utilization low. You can do this by monitoring your spending, applying for an increase in available credit, and paying down balances regularly and, if possible, more than the required minimum. (Learn methods of debt repayment here.)

 It is advisable to keep this score below 30%. 

Length of credit history

A long history that is positive on frequent transactions and straight payment records is a boost. Get your account early and start using this account in order to accumulate those years of engagement. 

A percentage of 15% on this value is good.

New credit

Applying for new credit cards is great as long as you space it out well and they all have a good, clean track record. Applying for new credit within a short period of time is a red flag to lenders. Having more cards can also decrease your utilization rate, hence a better overall score.

The recommended ratio for this is 10%

Credit mix

Credit mix refers to the variety of credit accounts a person holds. They include credit cards and loans. A good credit mix is an indicator of stellar financial management on your part as an individual.

 This accounts for 10% of the overall score

Credit score ranges you should be aware of are as follows:

• Excellent: 800–850

• Very Good: 740–799

• Good: 670–739

• Fair: 580–669

•  Poor: Below 580.

How to improve credit scores 

• Always pay on time

• Reduce credit card balances

• Avoid new hard credit inquiries

• Don’t close old accounts

• Dispute errors in reports

• Avoid making late payments, especially on loan repayment.

•  Do not max out cards; always leave something in the card account.

• Avoid Frequently opening/closing accounts

•  Do not ignore credit reports. Be sure to always go through those reports to check your track record, note any concerns, and work on them.