June 06, 2023

What is a credit score and how to improve it?

It is a three-digit number ranging from 300 to 850 and is used to evaluate a person's financial solvency. This score determines whether one can obtain a loan, credit card, mortgage, and also affects the price of auto insurance and the amount of security deposit when renting a home.

The credit score influences the decision of lenders and financial institutions when granting credit and also determines the interest rate that will be offered. The higher your credit score, the lower the interest rate you will have to pay, resulting in significant savings over time.

The impact of the credit score on the financial lives of individuals in the United States is enormous. It not only affects the ability to obtain credit but also other aspects such as renting or buying a home. A low credit score can have catastrophic consequences in various areas of life.

Here are some tips to improve your credit score in the United States:

1.Pay your debts on time: Paying your bills and debts punctually is essential to maintain a good credit score.

2.Spend below your credit limit: It means spending less money than the limit on your credit card or line of credit. Instead of spending up to the maximum allowable limit, it is recommended that you spend less to maintain a lower balance relative to the available limit. This demonstrates responsibility and financial discipline, which can be improved for your credit score and overall finances.

3.Maintain a mix of cards and loans: Having different types of credit, such as credit cards and installment loans, shows that you can handle different financial responsibilities.

4.Try to maintain long-term cards: Applying for and keeping credit cards for an extended period demonstrates stability and can benefit your credit score.

It is important to note that the credit score in the United States can have long-lasting implications, and a lack of a good score can perpetuate economic inequalities and discrimination. Additionally, for immigrants who do not have a credit history in the country, building a solid credit score can be a challenge. However, as credit history is acquired and financial responsibility is demonstrated, the score can improve.

The credit scoring system was established to provide an objective assessment of credit risk, but it can also reflect biases and historical inequalities. Despite its limitations, the credit score remains an important tool in the US financial system, and having a good score can open doors to better credit opportunities and favorable conditions.