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"How is your credit?"
Most of us have an idea a vague idea, but no concrete answer so we sheepishly answer what we think. Or hope. Well, it's time you had some clarity.
Why is a Credit Score Important?
It could save (or cost) you thousands of dollars.
How’s that for important? Though it’s not the only factor, your credit score is often a key factor in determining if you’ll be approved for a credit application and for how much. This means it could be the deciding factor on whether you're able to purchase a new car or home – as well as how much you will be approved for. Additionally, it will be a factor in determining your rate of interest or how much the credit will cost you. The higher your credit score, the more likely you are to be approved for a credit application and the more money it will save you. The reverse is also true; a low credit score will cost you.
What is a Credit Score?
Basically, it's a number to gauge your creditworthiness or your credit health. A lender may it to determine how likely you are to live up to your future credit obligations. The actual mathematical calculation is too complicated and complex to worry about, but simply put, the number is based on your credit usage and history, including:
Your track record for repaying your loans and credit card balances
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How much money you currently owe on your credit accounts
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How long your accounts have been open
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The different types of credit you use or credit mix
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How much credit you use compared to the amount of credit you have available
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How often, and how recently you have applied for credit
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You can build a better and stronger credit score
Your score isn’t written in stone. It will evolve and change with your repayment and credit behavior. Here are your top 5 tips to maintain or build a better credit score:
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Be punctual. Never be late. Make every single payment on time. Even if you can’t pay your credit card off in full, at least make the minimum payment. Late and missed payments, as well as collections, will have a huge impact on your credit score.
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Make living within your means a lifestyle choice. Pay off your credit card in full every month. Credit card debit is one of the more expensive debt vehicles. Black is the new black. If you do maintain a balance (lots of us do), keep your account balances below 35% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the outstanding balance below $350.
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Get the right mix. Have access to multiple, yet reasonable, credit products. Having a too high or too low of a credit limit will harm your score. If your revolving credit products are maxed out, that will have a negative impact your score as well.
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Don’t apply for credit too often. Having multiple “hard” inquiries on your credit file will damage your score. Other inquiries, for instance for employment or insurance, have little or no impact on your score.
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Check your credit report regularly. Fix any inaccuracies that may harm your credit health. If you find an inaccuracy on your credit report, you can contact the creditor associated with the account or the credit reporting agencies to correct it.
Talk with us! We're committed to helping you reach all of your financial wellness goals.