Your credit score is more than just a number and we’ve all heard it has a huge impact on our overall financial well-being. What makes up a good credit score and how does it really effect the cost of things in the future? It’s really not as confusing as it may seem.
A good score will help you to buy a new car, purchase your first home, or even take vacations. However, without a good credit score, you will be saddled with high-interest rates or unable to obtain any credit at all. So what factors affect your credit score and how do you improve it? There are five key areas that make up your credit score:
New Credit – 10%
Avoid opening several credit accounts in a short period of time. This can represent a greater risk to the lender, especially if you do not have a long credit history.
Credit Mix – 10%
It is beneficial to have different types of credit in your history. A mix of credit cards, installment loans, auto loans, mortgages help improve your score.
Length of Credit History – 15%
In general, a longer credit history will increase your score.
Amount Owed – 30%
Generally, a good credit utilization ratio is less than 30%. That means you are using less than 30% of the total credit available to you. Anything above 30% can cause your credit to drop. So, let’s say you have a credit card with a $1,000 limit. You should keep your balance, at all times, below $300.
Payment History – 35%
It is crucial to pay your debts on time. This is the single most important factor that affects your credit score.
If you find yourself with a credit score that is lower than you like and it is creating difficulties in obtaining credit, don’t despair. Building stronger credit does take time, but with patience and a commitment to managing your credit over time, it can be done.
Steps for Improving Your Score
Get Your Current Credit Report
If you haven’t already, get your free credit report at annualcreditreport.com to see where you currently stand. You can request your report once per year at not cost from each of the 3 credit bureaus. A helpful tip is to pull just one bureau at a time and space the three pulls throughout the year so you can catch things that may show up as early as possible.
Reduce the Amount of Debt You Owe
Stop using your credit cards. It may also be beneficial to work with a reputable credit counselor to develop a personalized plan to pay off your highest-interest debt first.
Start Practicing Your New Healthy Credit Habits
Things like opening new accounts sparingly, managing credit card use responsibly and keeping credit card balances low are all important factors in improving and maintaining your credit score.
Talk to a Genisys Credit Union Member Service Representative about ways they can help you improve your score.
Contact us to get your credit score moving in the right direction. Need help budgeting or making payments on time? Genisys also offers the GreenPath Financial Wellness program to get you back on track.
Source: Greenpath Financial Wellness
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