A credit score is a requirement and a tool of financial institutions, a tool that can open up a world of credit, investment and financing opportunities.

It’s also a decisive factor for your personal economy and the growth of your business, both for your credits and for the financing of your projects. 

What if we told you that maintaining a good credit score is not as difficult as many might assume? 

In this article, we will not only tell you what a credit score is and what factors affect it. We'll also tell you what numbers you should aim for to get a good score and give you practical tips on how to achieve it.

What exactly is credit scoring?

Let's get technical.

By definition, a credit score is an indicator used by financial institutions, banks, and lenders to evaluate your credit responsibility. 

This indicator will be a tool for them to know how likely you are to comply with the credits they may grant you. 

This is the main requirement to apply for all types of credits and loans, from credit cards, business cards, and financing to mortgages.

This score is calculated by credit bureaus such as Experian, Equifax and TransUnion, 3 of the most important -but not the only ones- worldwide.

In addition, there are two globally accepted and used credit scores:

• FICO Score.

• VantageScore. 

Now, this percentage varies according to your financial operations, among many other factors. And for that reason, you don't need a perfect score in most cases, just one high enough to be considered excellent.

How does it work and what factors can influence your score?

To understand how this score works, you need to understand what factors influence it. 

Each score has different parameters, so your scoring criteria are different as well. However, the vast majority of credit scores are based on the following factors:

1. Payment history

Perhaps the most important factor when calculating your credit score.

Here, not only are the payments you have made throughout your history evaluated, but also payment times, timeliness in paying off debts and past due dates, among other criteria.

Punctual payments are fundamental when it comes to increasing your credit percentage. If you have no late payments in your history, your chances of obtaining better credit and financing opportunities are quite high.

2. Number of accounts

Some algorithms and formulas take into account the number of credit accounts you have to check your experience and comfort with credit, as well as your number of debts according to your accounts.

Of course, users who have multiple credit accounts but have no delinquencies or issues on their record have better scores.

3. Level of indebtedness

This includes your balance of used credit and available credit. And of course, the status and amount of your debt.

If your debts are well below your available credit level, your score will be much higher. On the other hand, a high level of debt compared to your creditworthiness will have a very negative impact on your score and credit history. 

4. New credit applications

Every credit application puts you under the radar of the credit bureaus and their scores, especially if you apply for large amounts. Too many applications in a short period of time can raise suspicions about the state of your finances.

As a result, your scores may drop and lenders may assume you can handle it. 

However, this rule does NOT always apply. If you have many low credit transactions, for example, because you use your credit card too often but can prove your creditworthiness, your score will not be affected. 

Factors that do not affect you

1. Type of employment

And here's a common confusion: credit reports take into account your financial solvency to manage your debts, but not your type of job.

In other words, you may have an average salary, but if you demonstrate credit responsibility, punctuality with your payments and low levels of debt, your score will be quite high.

On the other hand, if you have an excellent job but high levels of debt, late payments and defaults, your score will not look so good.

2. Age

Age is not as relevant a factor as many assume. What IS relevant is your credit history. The longer your credit history, the more variables are in play. 

It's not that credit reports will give you a good or bad score because of your age. It's the age of your history that influences you, as well as the factors already mentioned. 

The higher the average age of your credit accounts, the higher your scores will be, as long as your history remains in order.

3. Immigration status and marital status

In general, demographics do not affect your credit scores. Your immigration status will never trump your credit history. 

Also, if you have no credit history, it will not affect your immigration status or prevent you from obtaining credit cards. 

However, a credit score is a mandatory requirement to qualify for financing, so not having one will prevent you from applying for credit. 

On the other hand, a bad credit score can affect your immigration status, especially when applying for visas.

Score range: What is a good credit score?

Thinking back, the two most widely used scores worldwide are the FICO Score and the VantageScore.

And while they are not exactly the same, they do have the same price range. Both use a score ranging from 300 to 850 points. Now, the credit ranges work as follows:

• A score of 720 or higher is considered an excellent score overall.

• A score of 690 to 719 is a very good score.

• A score from 630 to 689 is considered fair, average, but not exactly good.

• 629 or less is considered a very bad score and can cause you many limitations. 

Average credit score

According to Equifax:

• The average FICO score in the U.S. is 714, which is considered a good score.

• The average VantageScore nationwide is 701, which is still considered a fairly acceptable score.

As you can see, the U.S. population is generally considered to have a good credit score. However, averages also vary by agency, specific scores and other factors such as geographic location and age of the population.

If your credit score is above these numbers, your chances of getting the best financing will be very high.

However, remember that the credit score is not the only factor that is taken into account when you apply for financing. 

In these cases, your immigration status and nationality are also taken into account. But above all, your finances, registered accounts and credit history, as well as your creditworthiness and credit capacity.

How can I check my credit score?

You can check directly through your bank account. Many banks offer the option of calculating your credit score, either through their websites or mobile apps.

For added security, you can pay any of the 3 agencies in the United States to receive your credit score. You can also get your score through any other agency, as long as it is based on the FICO score or VantageScore.

You can also check your score through a website. There are many platforms that can help you calculate your score for free. However, these do not offer the same security as the credit bureaus.

Credit Reports

Now, credit reports do NOT reflect your scores. Many believe that by requesting a report, they will also receive their total scores, but these must be requested separately.

That said, the reports are vital to check and contrast your finances against your credit scores, especially in cases of disputes or issues. 

The reports will help you verify that everything is in order and will help you detect possible mistakes in your history.

Why do I have multiple scores?

Scores vary and differ depending on the credit bureau you choose. However, in these cases, the safest bet is to check the FICO Score and VantageScore directly.

How to improve your score? Tips to raise your score

Finally, here are some tips that will help you raise your score:

1. Keep up with your payments and debts

Remember, payment history is one of the most important factors when it comes to credit scores. If you can pay on time and avoid accumulating debt, you can increase your score without even noticing it.

And if you can pay well before the due dates, this will have a very positive impact on your credit history. Also, be sure to keep up with your utility payments.

2. Reduce your debt

Hand in hand with the previous point, try to keep your credit card balances as low as possible. The lower the percentage of your credit limit, the better your score will be. 

And if you can pay off your credit immediately, so much the better; not to mention that this will lower your interest rates, which means lower credit payment expenses in the long run.

3. Check your credit report regularly

You can request your credit report every year, or even every six months. If you find an error on your reports, contact your credit bureau to solve it. That way, you won't have to deal with mistakes in your final score.

Plus, your records will remain spotless, which will make a good impression on creditors and lenders.

4. Keep your old accounts open

(Especially if they have a positive history).

Having different types of credit, such as cards, loans and mortgages can show your creditors that you know how to handle credit properly, as long as you handle these credits correctly. Especially if we are talking about old accounts with a long history.

On the other hand, closing an account can draw the attention of your creditors, so avoid closing credit accounts and cards impulsively.

5. Limit your credit inquiries

Each inquiry equals one inquiry on your credit report. Too many inquiries can be taken as a red flag on your history.

In other words, too many credit inquiries in a short period of time can reflect a large imbalance in your accounts, even if your finances are in perfect order.

And of course, use your credit responsibly. And don't forget that the score is not everything when applying for credit, especially if we are talking about business loans and project finance. 

Good management of your credit accounts is your best weapon when it comes to improving your credit score and credit history. If you can keep your accounts in order, avoid accumulating debt and demonstrate a solid credit history, your credit scores will be formidable.

And the better your scores, the better your chances of getting credit limit increases, as well as business and mortgage financing.

What has been your experience with credit scoring and do you have any tips on how to manage credit? If so, feel free to share it in the comments.