Published on January 18, 2021
Get to Know your Credit Score – Part 1
What’s your score?
When’s the last time you checked your credit score? Have you ever checked your score?
Tough questions, but questions that need answers.
In fact, your financial world revolves around the answer to that question. Everything depends upon it, including the rate on your credit card and your car loan, and whether you will qualify for a mortgage. And yes, even the contract for your new cell phone is dependent on your credit score.
If you don’t know your credit score, make it a point to find out. After you get your score, take the next step and get a copy of your credit report. You can get both of these on multiple websites or by checking with the federal government. There might be errors on your report that affect your score and you can dispute them. Don’t suffer with a bad score because of a simple input error.
Credit scores range from 300 to 850. A score of 850 means you’re likely to be approved on each of your loan applications, while a score of 300 will make it significantly more challenging to receive any approvals.
There’s a lot of confusing information when it comes to credit scores. The term “credit score” is not the same as “credit reporting agency.” There are three main agencies: TransUnion, Equifax and Experian. They determine credit worthiness by evaluating credit scores, histories, and reports. There are also two main types of scores: FICO® and VantageScore®. These two agencies weigh your spending habits and credit differently, which may affect your score. To see the differences, click the links provided.
Community Choice uses VantageScore 3.0 to determine credit worthiness. See our companion blog on why the credit union recently switched to VantageScore.
Whatever model or bureau used to calculate your score, here are five tips to keep your score moving in the right direction.
1. Pay your bills on time
This is an easy one. FICO and VantageScore consider your payment history as the most important part of your score. So don’t skip a payment.
2. Keep your credit card balances low
Most experts agree that you should not use more than 30% of your available credit. That includes single credit cards and the total of all credit vs. all your debt. So try hard not to max out your cards.
3. Don’t apply for too much credit
When you apply for a credit line, whether it’s a credit card or a car loan, it is classified as a “hard inquiry or hard pull” on your credit report. Too many of these hard pulls in a short amount of time can lower your score because it might indicate that you’re desperate for credit and a risk to the lender. Hard pulls will shave points off your credit score. Your score will bounce back, but it is something to keep in mind.
4. Don’t close old cards unless you have a good reason
Think twice before you close an old account. Closing an account will reduce your amount of available credit (remember the 30% rule), and the age of your credit account is factored into your score − a longer payment history is a good sign to creditors.
5. Pay attention to history
Keep in mind that a strong credit history is better than no history, so don’t be afraid to apply for and use your credit. Just do so wisely and strategically. Stay on top of your score and keep monitoring your credit report. You’ll be amazed at the difference it makes.
Community Choice members with a Choice Checking Account have access to their credit score instantly and receive monthly updates about their credit report. Check out all the benefits here.