Your credit score is essential to your financial well-being. It makes the difference between high and low-interest rates because lenders use it to determine your ability to service loans. Apart from credit card application, your credit score shows whether you’re eligible for a mortgage, payday, auto, small business, veterans, and student loans. It’s advisable to maintain good credit because it will always be a vital aspect of your financial life.
Although there are various types of credit scores, the FICO score is the most popular. Issued by the Fair Isaac Corporation, a majority of top lenders analyze it before making lending decisions. It’s a three-digit figure that summarizes your credit report.
You can get your credit score from any of these three bureaus: TransUnion, Equifax, and Experian. These organizations use information submitted by lenders to calculate your score. As such, your credit reports from all three might not always match, since some lenders may not submit the relevant details to all bureaus.
The lowest possible credit score is 300, while the highest is 850. In reality, no one hits these extremes. A good score ranges between 680 and 739, with anything higher being excellent. A poor score ranges from 550 to 619. Lower scores are deemed unacceptable.
What Factors Impact Your Credit Score
Five major factors affect your credit score. The first is your payment history. Lenders will give you a good rating if you’ve serviced your past debt on time. One missed payment is enough to lower your FICO or Vantage Score points. Secondly, lenders monitor the amount of current available credit that you utilize. They tend to judge you negatively if it rises above 30%.
Your credit history length is the third determinant. The longer it is, the more likely you are to have good credit. Another factor is your credit mix, which consists of the various debts that you service. Examples include a mortgage, auto loan, student loan, and credit card. A diverse, well-managed portfolio improves your credit score. Finally, the number of new credit products or inquiries accounts for up to 10% of your FICO score. Borrowers with good credit tend to have as few as possible.
Steps You Can Take
The following tips are guaranteed to improve your credit score:
1. Spend Under Your Limit: Try to keep your credit card balances under 30% of your combined limits. That’s because card issuers usually forward these figures to credit report bureaus at the end of every billing month. Monitor your balance online and reduce it appropriately.
2. Pay on Time: Loans are not the only entries that impact your credit score. Failure to pay utilities such as gas and electricity on time can hurt your ability to borrow affordably.
3. Keep in Touch: Understand the five major factors that influence your credit score and manage them efficiently. Update your contact information so that lenders can find you in case of any miscommunication.
4. Stay Organized: Have a list of all debts, bills, and other financial obligations and pay them on time. Authorize your checking account to make automated payments if possible.
5. Consolidate: Several small debts may seem harmless until the interest piles up. You also run the risk of forgetting some. You can maintain good credit by taking one loan to pay them all off.
6. Check Your Credit Report: Evaluate your credit report regularly to eliminate any errors that might hurt you financially.
Credit Boosting Services
These services allow you to improve your FICO score by evaluating bills that wouldn’t ordinarily be part of your credit report. They include utility, video streaming, and telephone bills. The best examples are Experian Boost and UltraFICO. After connecting your checking account to the service, pick your most ideal financial indicators and wait for positive credit reports.
Take Control of Your Credit
An excellent credit score doesn’t happen overnight. It’s a result of consistently observing healthy financial habits. It also requires discipline to pay off your current debt and avoid unnecessary spending. It’s advisable to implement the above tips steadily instead of taking shortcuts. Although the progress might seem slow at first, the benefits will be worth it. Other than access to affordable credit, you’ll also achieve lasting peace of mind.