Credit affects more aspects of your financial life than you may realize! The ability to buy a home, a car, get a credit card, rent an apartment, or even get a job can be affected by your Credit Score. Your Credit Score is a number that lenders use to determine whether you qualify for credit - and if so, how much interest they’ll charge you. Credit Scores are widely used in lending decisions, and knowing your score should be a vital part of your credit health. Let me share some reasons as to why you should keep up with your Credit Score.
Your Credit Score ranges from a low 300 to a high 850. The higher your score, the more likely you will qualify for the lower interest rates. FICO gives its formula to three credit bureaus—Equifax, Experian, and TransUnion—and they apply a certain math to your credit reports. Each bureau pulls information from a slightly different network of lenders to compile its own report on you. Because of this, you actually have three different FICO scores, and they would span within this range.
You can get your Credit Scores from each of the three credit bureaus from myfico.com for a fee. You are also entitled to one free copy of your report; one every 12 months. Access them at AnnualCreditReport.com. This report, however, does not provide you with a score.
FICO looks at these five factors to calculate your score:
1. Your Payment History.
- How do you handle your credit?
- Have you ever paid an account late, how often, and by how many days?
2. Your credit utilization ratio.
- How much total debt you have versus how much credit is available.
3. The length of your credit history; how long have you had your accounts?
- The longer you've had an account, the better.
4. How much new credit you have?
- Multiple requests for new credit means you're a greater risk.
- FICO looks at the number of new accounts that you've opened, as well as the number of requests.
5. Your credit mix - the variety of accounts you have.
- FICO looks at he number and "quality" of each type of account. For Instance, a credit card from a national bank carries more weight than one from a department store. Revolving accounts (such as credit cards) tend to count more than installment loans (mortgages, car loans) because they're better predicators of your debt management.
Important elements to look at regarding that magic number:
1. Make Timely Payments - or better yet - Pay Off that Balance!
- Pay your bills on time: delinquent payments, even if only a few days late, and collections, can have a major negative impact. Most banks offer payment reminders through their online portals that can send you an alert reminding you when a payment is due.
- If you have missed payments, get current and stay current; maintain consistent, good payment patterns.
- If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won't rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. And seeking assistance from a credit counseling service will not hurt your Credit Score.
2. Reduce the amount of debt you owe:
- This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement towards improving your score. Higher debt patterns work against you. Lenders look at your “usage ratio” - how much debt you owe compared with the total amount you could borrow (a percentage of your debt to income ratio). Keep your usage ratio low, don’t max out your cards, and try not to overspend.
- Use your credit report to make a list of all of your accounts and then check/compare recent statements to determine how much you owe on each account, and what interest rate they are charging you. Develop a payment plan that puts most of your available budget towards the highest interest cards first, while maintaining minimum payments on your other accounts.
- Don't open a number of new credit cards that you don't need; stay within your limits.
You know your Social Security number, a certain PIN number, and certain passwords. But do you know the number that could cost or save you money? Knowing your Credit Score should be just as important! You are more in control, and accountable, by making it a part of our financial health. Be diligent, patient, consistent; and you could see your credit score at its best!
For additional information on building your Credit Score CLICK HERE
Contact ECU Credit Union at 1-800-382-2400 or www.ecucreditunion.com for information about opening account or adding additional services to your current account.
Authored by Filomena Iuliucci
