Beginners Guide to Improving Your Credit Score
Maintaining a good credit score is essential for anyone looking to access credit, whether it’s for a loan, credit card, or mortgage. Your credit score is a reflection of your creditworthiness, and having a high score can make it easier to get approved for credit and qualify for better interest rates and terms. But how can you maintain a good credit score and improve it over time?
Let's Start With The Basics
At its core, a credit score is a numerical representation of your creditworthiness. It is a tool used by lenders, banks, and financial institutions to assess the risk associated with lending you money or extending credit. A credit score is typically calculated based on various factors, including your payment history, the amounts you owe, the length of your credit history, the types of credit you use, and any recent credit inquiries. These factors are evaluated and weighted differently by credit reporting agencies, such as Equifax, Experian, and TransUnion, who use complex algorithms to generate your credit score. The most commonly used credit scoring models are FICO® Score and VantageScore®, which range from 300 to 850, with higher scores indicating lower credit risk and greater creditworthiness.
Ways to Help Improve Your Credit Score
Improving your credit score requires a combination of responsible financial habits and patience. Here are some effective strategies to help boost your creditworthiness:
- Pay your bills on time: Late or missed payments can have a significant negative impact on your credit score, so it’s crucial to prioritize paying your bills on time, every time.
- Keep your credit utilization low: this means you don’t use too much of your available credit. According to an article by U.S. News, experts recommend keeping your utilization rate below 30%, although the lower, the better.
- Review your credit report regularly: Look for errors or inaccuracies that could be impacting your credit score. You are entitled to a free credit report from each of the three major credit bureaus, Equifax, Experian, and TransUnion, once a year. These can be accessed through each company’s website.
- Limit new credit applications, unless you’re ready for it: Every time you apply for credit, it can temporarily have a small negative impact on your score. This dip in your score can easily bounce back, and new credit can boost your credit score in the long run, as long as the new credit is managed well. Be strategic about when and how often you apply for new credit, as well as your responsibilities caring for them.
- Be strategic about closing credit accounts: Closing a credit account can impact your credit utilization and length of credit history. If you’re going to close an account, make sure you understand the potential impact on your score.
By prioritizing your credit score and taking steps to improve it, you can set yourself up for financial success and access to credit when you need it. And with the help of your credit union, you can get the support and guidance you need to make smart financial decisions and achieve your goals.
Still have questions about credit scores? Check out these other helpful resources or reach out to our team - we're here to help!