How’s Your Credit Score?
Whether you understand the complicated math that goes into a credit score or not, you likely understand how important a healthy credit score is to your financial goals. It’s considered when you attempt to rent an apartment, when you apply for credit cards, and when you seek home or vehicle financing. The better your credit score, the more likely you are to be approved for financing, rent, and credit lines—and a lower score limits your financial freedom.
The first step in checking your financial health is to check on your credit score. The Consumer Financial Protection Bureau allows you to request a free credit report once a year from each of the consumer reporting companies. You can access your credit report at: AnnualCreditReport.com
Of course, knowing your score is just the first step. Here are a few considerations that could help you understand the number a little better, and some tips to help you make improvements if needed.
Keep Score of a Few Things:
While a credit score is a complicated equation and the different consumer reporting companies factor scores slightly differently, there are a few considerations that definitely affect your score:
- Your payment history. Think of a credit score as a sort of “report card” which grades your reliability as a borrower—so, the more regular you are with payments, the higher a score you’ll have.
- Time. It takes time to prove reliability and, in the same way, it takes time to “build” a score. When you first start borrowing, lenders are very cautious lending to you, but as you develop a history of credit, they know better what to expect. Of course, that works both ways as both responsible behaviors and mistakes factor into the score—thankfully, things don’t remain on your report forever.
- Your account mix. This is a fancy term which means that lenders are interested in the types and variety of your borrowing. If you’re thinking of a reliability grade, lenders are looking not only at your payment consistency but also at your dependability across multiple types of credit including credit cards, student loans, mortgages, etc.
- Your credit card application history. Lenders could worry that you might be overextended financially if you apply for several credit cards in a short timeframe, so be careful about the number and frequency in which you apply for additional lines of credit.
Ways to Score a Few Extra Points: *
Maybe more helpful than fully understanding the mystery behind the number, here are a few practical things you can do to help you improve your credit score:
- Be as reliable as possible. The more lenders view you as reliable, the higher your credit score. So pay your bills on time, or better yet pay them ahead of time.
- Lower your debt. It’s obvious but paying off your debt and keeping your debt as low as possible positively affects your credit score.
- Keep your unused credit cards open. Being able to borrow more, without having to do so, increases your credit utilization ratio which affects your overall score.
- Stay informed and accurate. Check your credit report AND be sure to dispute any and all inaccuracies. It’s important to make sure there isn’t any fraud or mistakes that could be negatively affecting your score.
- Play the long game. It takes time to improve your credit score. Even though it can take a while, every little bit helps and your recent activity factors more into your score than your past activities. So, don’t be discouraged at temporary setbacks or at slow incremental increases—your best bet is to be patient and deliberate.
Reaching your financial goals depends upon having a healthy credit score and a variety of other considerations, but Vantage is here to help!
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* Information from Experian.