4 Reasons Why your credit score matters
Reason 1
It impacts whether you'll be approved for credit cards, car loans, student loans and more.
Reason 2
It impacts what interest rate you'll get on these loans.
Reason 3
It can affect the cost of your car insurance.
Reason 4
It can keep you from getting that apartment or house you've been hoping for.
HOW YOUR SCORE IS CALCULATED
Your credit score uses information from five key areas of your credit history.
35%PAYMENTHISTORY
Do you pay bills on time? Any recent missed payments? How promptly you pay your bills is a strong indicator of your willingness and ability to repay your debt and has the largest effect on your credit score.
30%WHAT YOU OWE
Your debt balance, as well as the ratio of debt to your credit limit, is a factor that heavily influences your score. Making sure you only borrow what you can afford to repay is a good rule to follow when managing your debt.
15%TYPES OFCREDIT
Which credit cards you use and loans you carry also play a role in your credit score. Typically, the more types of credit and loans you've had, the better. So if you've had a car loan, credit cards, installment loans and a mortgage, this will likely affect your score positively. It tells lenders that you have a variety of experience with credit.
10%NEWACCOUNTS
Lenders are also watchful of individuals who apply for lots of credit over a short period of time, as it could suggest a financial problem. For this reason, opening many new accounts too frequently can have a negative impact on your credit score.
10%LENGTH OFHISTORY
How long you've had credit will factor into your final score. A longer credit history shows a pattern of borrowing and repaying loans. This makes you a better risk in the eyes of lenders, and your score will positively reflect that.
Do you pay bills on time? Any recent missed payments? How promptly you pay your bills is a strong indicator of your willingness and ability to repay your debt and has the largest effect on your credit score.
Your debt balance, as well as the ratio of debt to your credit limit, is a factor that heavily influences your score. Making sure you only borrow what you can afford to repay is a good rule to follow when managing your debt.
Which credit cards you use and loans you carry also play a role in your credit score. Typically, the more types of credit and loans you've had, the better. So if you've had a car loan, credit cards, installment loans and a mortgage, this will likely affect your score positively. It tells lenders that you have a variety of experience with credit.
Lenders are also watchful of individuals who apply for lots of credit over a short period of time, as it could suggest a financial problem. For this reason, opening many new accounts too frequently can have a negative impact on your credit score.
How long you've had credit will factor into your final score. A longer credit history shows a pattern of borrowing and repaying loans. This makes you a better risk in the eyes of lenders, and your score will positively reflect that.
6 WAYS TO IMPROVE YOUR CREDIT SCORE
Keeping your credit balance to 25% or below your available credit is a good general rule. But, don't open credit accounts you don't intend to use just to increase this ratio.
Late payments make a huge (negative) impact on your score. If you have missed payments, get current and stay current. Consider autopay features to keep you on track.
If you make only the minimum payment on your credit card each month, it may take longer than you think to pay off your balance. Example: You have a balance of $1,500 on your credit card with an interest rate of 14.99% and make $100 in new charges each month. If you pay only the minimum payment of $125 per month, it will take you more than 10 years to pay off your credit card debt. Increasing your monthly payment to $174 per month means you can pay off that debt in 2 years and save hundreds in interest charges.
Having many "inquiries" into your credit report and expanding your credit line too quickly may signal to creditors that you're on the brink of major financial problems.
Simply transferring your debt from card to card will not improve your credit score. The best way to improve it is to pay off your outstanding balance every month.
By federal law, you are entitled to one free copy of your credit report per year from each of the 3 major credit bureaus. Check your credit report at least once per year to ensure that the information on it is yours and is correct.