Big life moments, like getting ready for a new baby, often come with big financial decisions, and having strong credit can make those moments easier to afford.
March is National Credit Education Month, so what better time than now to demystify your credit score!
You may already know that a credit score is a number between 300 and 850 that is basically a "grade" you get for how well you manage credit. There are three main credit bureaus, named Experian, Equifax and TransUnion. They each give you a credit score.
If you have a better (higher) credit score, banks are more likely to lend you money at a lower rate. You may also get a higher credit limit on that new credit card, and even some jobs factor in your credit score when deciding whether to hire you.
But the way your credit score is calculated can be a little bit confusing! Factors like whether you pay bills on time (even non-credit card bills), how much debt you have and a lot of other things factor into your grade. Here are five high-impact credit factors that you can control.
Utilization. Credit utilization is how much of your available credit you are using on your credit cards. If you have a $10,000 limit and your balance is $2,000, you are using 20%. You don't want your credit utilization to be too high, so try to keep it under 30%. Of course, your best bet is to use only as much as you can afford to pay off on time each month!
Payment timing. Are you routinely late on payments? If you are, that can negatively impact your credit score. If you have trouble remembering to pay bills or you get too busy to do it, set up automatic payments to ensure your bills are paid on time. (Your credit score includes whether you're on time with utility bills, not just credit cards and loan payments!)
Account age. How long have you had your oldest credit card? If you opened a credit card 20 years ago and never use it, it's probably a good idea to keep it open and use it occasionally. This can show that you're responsible over time.
Hard inquiries. There are two types of checks that banks can do when they are considering loaning you money — a "hard" inquiry or a "soft" one. A "hard" inquiry (or a "hard pull") is when a bank requests your credit report because you are actively applying for a loan. The credit score agencies record this information. Only let a bank do a "hard" inquiry if you are serious about getting a loan, as multiple pulls can tell the credit score agencies that you are actively seeking new, significant debt.
Credit mix. Do you have a "mix" of credit types? Your credit score is more than just credit cards, but also loans. Credit mix is much less important than your payment history or credit utilization, but it is a factor. That said, don't go get an auto loan if you don't need one just to "mix" things up! This is a pretty minor factor.
The good news is that you can control your credit score! If you don’t know what your score is, you should head over to AnnualCreditReport.com, where you can get a free credit report from each bureau every year. You should look for any errors or issues and start working toward fixing those to increase your score!
If you're looking for budgeting advice, more info about your credit score or anything other financial education, we're here for you, for life. Just call, click or stop by a branch and we'd be happy to help.
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