Facts about Credit Scores
Who’s keeping score? The credit industry is. Every time you apply for a new credit card, a mortgage, perhaps even an insurance policy or a job, your application is judged in part on your credit score. March is National Credit Education Month, so there’s no better time to learn more about your credit, and how it may affect your next loan application.
What is a credit score?
A credit score is a three-digit number that lenders use to objectively measure your creditworthiness. Your credit score is a snapshot of your finances at a particular moment in time. As information in your credit file changes, so will your score.
What factors are taken into consideration for my credit score?
Credit scores are calculated based on five different categories: payment history, total debt, length of credit, new credit and credit mix.
- Payment history. This is perhaps the most important factor. Have you ever had an account sent to collections? How many times have you been late? How late or how recent were those late payments? Paying your bills on time has a huge impact on your credit score.
- Total debt. How much overall debt do you have? How many credit cards have balances on them? How many are close to their limits? How close are you to your overall credit limit? Keeping your total debt to around 30% of your limit will result in a more favorable credit score. Anything over that might ding your score a few points.
- Length of credit history. Is the person an emerging consumer or someone who has paid bills on time for 10 years? It takes time to build credit, but the longer you have active credit, the more likely you are to have a higher credit score.
- New credit. Are you shopping aggressively for credit right now? A flurry of activity and inquiries on your credit report raises suspicion, and your credit score will take a hit.
- Credit mix. Do you have a healthy mix of credit: bank cards, store cards, mortgage, home equity lines of credit? Having a mix of a few different types of credit may boost your overall creditworthiness.
Who uses my credit score?
Lenders are the primary – but not only – users of credit scores. Employers, landlords and other businesses may also check credit scores to evaluate applicants.
What happens if I have a low credit score?
Each lender sets different ranges for what it considers “good” and “bad” credit scores. The average person with “A” credit – also known as a “prime” customer – has a FICO score of 650 or higher on a scale of approximately 850. If your score is lower, you may be considered a “subprime” customer. Consumers with lower credit scores often pay higher interest rates on mortgages and credit cards because they’re viewed as riskier customers.
What can I do to improve my credit score?
Because your credit score takes you entire credit history into account, it’s not easy to change quickly. If you’ve chronically paid bills late, you’ll need to change your habits to see a change in your credit score. Other ways to improve would be paying down your debt to lower your total credit utilization.
Where can I find my credit score?
Checking your credit score is easy! You can easily access your credit score within our digital banking portal when you sign up for Savvy Money. Savvy Money is a complimentary tool for members to regularly check their credit score, and stay up to date on any fraudulent activity. Credit scores in Savvy Money are updated daily, so you’re always receiving the most up-to-date information. For more information about Savvy Money and credit scores, visit: https://www.unclecu.org/credit-score/.