What is a credit score and why is it important?

Are you new to credit scores, or just need a refresher? We’ve put together some basic information below on what a credit score is, how it’s calculated, and why it’s important to you.

Credit score explained: What is it and how is it used?

• A credit score is a three-digit number that shows how reliable you are at paying back borrowed money. It ranges from 300 to 850, with higher scores being better.
• Your credit score is based on your credit history, including how often you pay bills on time and how much debt you have.
• Lenders, landlords, and even some employers use this score to decide if they will give you a loan, rent you an apartment, or hire you for a job. A good credit score can be helpful to you.

How is a Credit Score calculated?

A credit score is calculated based on five main factors:

• Payment history (35%), which looks at whether you pay your bills on time.
• Amounts owed (30%), which considers how much debt you have compared to your credit limits.
• Length of credit history (15%), which accounts for how long you’ve had credit accounts.
• New credit (10%), which examines recent credit inquiries and new accounts.
• Credit mix (10%), which looks at the variety of credit types you have, such as credit cards, mortgages, and loans.

What is a credit bureau?

• A credit bureau is a company that collects and maintains information about your credit history.
• In the US, the three main credit bureaus are Experian, Equifax, and TransUnion.
• They gather data from banks, credit card companies, and other lenders to create your credit report.
• This report includes details about your loans, credit cards, and payment history.
• Lenders, landlords, and employers use this information to assess your creditworthiness, helping them decide whether to offer you credit, housing, or a job.

How do Credit Bureaus work?

• Credit bureaus collect and maintain information about your credit activities from lenders, banks, and other financial institutions, including Credit Builder.
• They compile this data into a credit report, which includes your payment history, amounts owed, length of credit history, new credit, and types of credit used.
• This report is then used to calculate your credit score, a number that reflects your creditworthiness.
• Lenders, landlords, and employers use this report and score to decide whether to offer you loans, credit cards, housing, or jobs.

Why is my credit score important?

• Your credit score is important because it affects your ability to receive loans, get credit cards, and rent apartments.
• A higher score can help you get lower interest rates on your loans, saving you money.
• Landlords and employers might check your credit score to see if you are reliable.
• Insurance companies may also use it to set your premiums.
• Overall, a good credit score opens up more financial opportunities and helps you secure better terms for various services and products.

How do I improve my credit score?

Improving your credit score doesn’t happen overnight. But small, steady steps can make a big difference in the long term. Here are a few ways to get started:

• Pay your bills on time. Your payment history is the most important factor in your credit score. Set reminders or enroll in autopay to help ensure you never miss a due date.
• Keep your credit card balances low by using less than 30% of your total credit limit. This shows lenders that you manage debt responsibly.
• Avoid applying for multiple credit accounts at the same time. Each application can lower your credit score for a short period.
• Prove you can manage different types of credit by making on-time payments on credit cards, loans, and other accounts.
• Build your credit by sending money through Western Union’s Credit Builder program. This is especially helpful if you’re new to credit or rebuilding it.

Do you want to learn how sending money with Western Union can help you build your credit history? Check out our Credit Builder.

A strong credit score can make a big difference in your financial future. With simple habits and tools like Western Union’s Credit Builder, you can start building yours today.