Your credit score plays a major role when you need credit or want to take a loan. A bad credit score can make it difficult to get a loan. To understand how to improve a bad credit score it is required to know the basic facts about credit score.

What is it?
The first thing to do if you want to know how to improve a bad credit score is to understand the basic concepts of credit score. We can define credit score as a number that tells how creditworthy a person is. This is a score that is calculated on a scale of 300 to 850.

A higher credit score indicates that a person has a higher credit rating. This means that a lender can safely lend knowing that the money loaned will be returned in a timely way. A lower credit score indicates that it is risky to lend to the person, as the chances of getting back the loan can be less.

Credit score meaning
A low credit score is obviously a problem. It is required to know what credit score is considered low. The credit score of FICO (Fair Isaac Corporation) is the one that is most popularly followed. As per this credit score, the following is the score and the grading:

• A score of 800 to 850 is considered Excellent.
• A score between 740 and 799 is Very Good.
• A score of 670 to 739 is a Good score.
• A score of 580 to 669 is considered a Fair score.
• A score of 300 to 579 is a Poor score.

A score below 640 is generally classified as subprime and such people find it difficult to get a loan. They are considered risky to lend to, and lenders may charge a higher interest and stiffer terms. If you have a credit score of more than 700, it is easy to get a loan at the best rates. If you have a credit score of 700, you can get an interest rate (APR) of 4.87%. A credit score of 550 will hurt you as the APR will be 17.165%. This explains the importance of a high credit score.

How is it calculated?
If you have a bad credit score, then you need to improve it. The first thing is to know why you have a bad credit score. This can be understood by knowing how the credit score is calculated.

The following are the criteria used to calculate the credit score and the importance that FICO gives to each of the criteria.

• Payment history – 35%
• Amount owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Types of credit used – 10%

How prompt you were while repaying creditors, the balance due, how long you have credit, the age of the accounts, new accounts opened to obtain credit, and the various types of credits are the factors that determine your credit score. This can be kept in mind to improve a bad credit score.

To understand how to improve a bad credit score, the article presented information about credit score and how it is calculated. This information will help you manage your credit score better and work to improve it.