The Importance of Your Credit Score and Tips to Improve It

Credit can be daunting to handle, but its power should not be underestimated. Good credit scores can open the door to many economic opportunities - from lower loan rates to greater financial freedom. To make the most of your score, start with an understanding of how your credit score is calculated. This guide will help you take control on your journey towards a prosperous financial future!

Why is my credit score important?

Your credit score is more than just a number - it's an indicator of your financial reliability. Your score impacts loan rates, insurance premiums, and can even affect employment opportunities. Understanding the importance of maintaining a good credit rating really should be top priority for everyone.

While there are many websites claiming to offer free access to your credit reports, there is only one official site that you should use. Jointly managed by the three largest U.S. credit bureaus, (Equifax, Experian, and TransUnion) annualcreditreport.com is the most direct (and probably safest) place to download your credit reports.

In fact, every U.S. citizen is entitled to a free credit report each year from all three credit bureaus. Just sign up at this official government-approved site and access essential information about your financial standing right away.

Credit scores are classified into these ratings:

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850: Exceptional

How is a credit score calculated?

Your credit score, on a scale of 300-850 points, is determined by several key factors. According to the standard FICO® Score model, here are some helpful percentages that impact your overall standing:

• Payment History - 35%

Late payments can quickly drag down your credit score, but making regular and timely payments is a great way to improve it. Taking things one step further by paying ahead of time could give you an even bigger boost!



• Total Amount Owed - 30%

An important factor to consider when managing your credit is staying within the limits of available resources - overextending can be a red flag for banks and indicate an increased risk. Be mindful of how much you borrow in order to maintain responsible financial habits.



• Length of Credit History - 15%

How long have you had a credit score? With time, your credit rating can get stronger and more reliable - so don't give up!



• Credit Mix - 10%

Having a smart balance of credit cards, loans and retail accounts can be the key to financial success. Too little or too much access to credit may leave you facing unwanted consequences - so make sure your mix is just right!



• New Credit - 10%

Banks are keeping an eye on how much new credit you're seeking out in a short amount of time, so think twice before starting numerous accounts within just a few months.

Does it hurt to check my score?

It's a myth that regularly checking your credit score will have an adverse effect - in fact, it is highly encouraged! It's reassuring to know that regularly monitoring your credit score won't have any negative impact on it. Checking your credit report(s) on a regular basis will allow you to have the peace of mind in knowing exactly where you stand. It's also key to stay alert for potential fraud activity!

Be aware though, checking your credit is much different than applying for new credit. If you're shopping around for a lender on a large purchase, like a new vehicle, or a mortgage; this will appear on your report as "hard inquiry" which may cause a small dip in rating due to increased scrutiny from lenders.

Can my credit score be repaired?

Don't let a bad FICO® rating get you down! You can easily boost your score with some simple strategies. You want to have some open credit accounts to show your good credit usage, but having too many accounts can also hold you back from having that high score you're after. It can be a confusing balance, and the below strategies are sure to help you make sense of it all!

• Build up your credit file

Having too few accounts can cause a low score. Consider opening a small credit card, or using a credit building service



• Don't miss payments - Automate them!

In this great world of technology, almost all payments can be automated. Automating payments (along with a great budget keeping app) is a great way to make sure you don't accidentally miss any payments.



• Cancel any unused credit cards

This can be a double edged sword. While closing credit accounts can lower your score, due to removing the presumably good history, it's usually a good idea to close accounts that you are no longer using. Especially if they are store credit cards.



• Reduce your overall debt

The best and probably most effective way to boost your score is to reduce your overall debt. If you have a credit line that you could pay off in the next 6 months, it would be a good idea to go ahead and do it. You'll save on interest, and boost your credit score at the same time.



• Bring any past-due accounts current

This one seems obvious, but it's worth mentioning. If you have any accounts with past-due balances, or a rocky history, bringing those accounts up to date will dramatically help your score.



• Don't apply for new accounts too often

Applying for new credit accounts often may make you look needy or desperate to banks and lenders. Use the information you've learned in this blog post to regularly check your credit, so you can develop a credit score that's a strong and healthy balance of credit usage, history, and and overall debt.

Lastly, consider hiring a trusted financial advisor. You don't have to travel this journey alone. With the help of a trained professional by your side, taming the credit confusion can become much more manageable, no matter where you're starting from.