What is a credit score? 

A credit score is a number that evaluates a consumer's financial credit status based on past credit history. Sometimes a credit score is also called a three-digit number that is usually seen between 300 and 850, which is designed to represent your credit score. These three numbers define how easily you can repay your loan. Credit scores are used by lenders including banks, credit card companies, and private lenders. A credit score plays an important role in a lender's decision to offer you a cash advance.

Why a credit score is so important?

Simply put, people with higher credit scores always get more financial services and help; As a result, whenever that person takes a loan, he can take advantage of the reduction in interest and the reduction in the total payment which makes it easy to pay back the loan and interest rates paid by him. And a bad score can force you to pay more. Now credit score has become an important part of our financial life, you can take advantage of this in an emergency by building a credit score regardless of your age or income. If you have a good credit score then you have to wait for the loan to be approved. If you have a good credit score then the lender will prefer to give you a loan.

How credit score work?

If a borrower has a good credit score, then they have to pay a lower interest rate resulting in less interest paid over the life of the loan. The credit score is divided into a few categories in which your credit score is usually measured from 300 to 850. If the higher your score the better chances for your loan options like (Auto loans, personal loans, installment loans). If ever you apply for a loan, your high score can indicate that you are much less likely to miss your payments. It is measured using the FICO score range as follows:

• Excellent credit: 800 to 850
• Very Good Credit: 740 to 799
• Good Credit: 670 to 739
• Fair Credit: 580 to 669
• Poor Credit: 300 to 579

Credit building factors: How your credit score calculated

There are so many different credit scores and scoring models are available in the market but there are two major credit reporting agencies in Canada (Equifax Canada and Trans Union Canada), which report, update, and store consumers’ credit score histories. While the difference in information provided by these two credit bureaus may vary slightly, the five main factors below are usually evaluated fairly closely by these bureaus when calculating credit scores:

1. Payment history of customer
2. The total amount owed by customers
3. Longer credit history
4. Many types of credit
5. Newly credit

The history of payments you make counts for 35% of the credit score, and the payments made show whether this person pays their obligations on time or not. The total amount taken by you is counted for 30%, the length of the credit history also counts for 15% which represents the digits passed correctly in your loan. The options used to increase the credit score are counted for 10% which shows whether a person has a mixture of installment credit, such as a car loan or mortgage loan, and credit card, etc. The new type of credit counts for 10% indicating how many new types of accounts a person has recently applied for.

What to do if we do not have a credit score? 

Sometimes everyone may not have enough credit history to create and reestablish the credit score. Depending on the consumer age, there are many ways to establish credit.

Most of the people ask the same question, again and again, is that do payday loans affect credit score? the answer is yes if you are under 21 have a cosigner, or you have to demonstrate that you can repay the payday loan or you must have a sufficient source of income to pay back the credit which is quite extended. It will help to create a credit score.

For others, one of the best ways to establish credit is to work with your bank or credit union so that you can build credit with a smaller credit limit. You can also step up towards the beginning of your credit creation by opening a secured credit card. With time to spare and good account management, you will be within reach of good credit history.

How to convert a bad credit score to a good credit score?

It is possible that your past credit-related mistakes can reduce your current score. This can happen because you always have the power to change your credit habits. Here are some good credit improvement options that can usually be effective in improving your credit:

• Don't open new credit card account frequently
• Payoff all delinquent bills
• Maintain current credit score
• Keep old credit score alive
• Pay bills on time
• Use a credit card to pay off all bill
• Take credit builder loan when required

Bottom Line: A credit score is a number that can save a lot in your lifetime, and can cause it to go bad. For example, an excellent credit score can lower your interest rates, which means you will have to pay less for the loan you take. Secondly, due to a lack of credit score, you may have to pay a higher interest rate for this loan even you may have to mortgage your house. So this credit score option becomes more important so that you can get access to more opportunities to borrow when needed.