Credit Scores Debunked

What’s a credit score, why does it matter, and how can I improve mine? In this article you’ll learn effective techniques to raise and maintain your credit score through managing credit cards, bill payments, and credit reports.

Your credit score: that magical little assigned number that decides your financial fate. Buying a car, getting a loan on a house, or starting a business–it all comes down to that one number. But what is it really, and how can it work in your best benefit? Let’s get into it.

What Should my Credit Score Be?

Credit scores run between 300 (yikes!) and 850 (perfect). Naturally, the higher the better. We suggest setting a minimum goal of 670 on the FICO scale. More specifically:

● 670 to 739 is good

● 740- 799 is very good

● 800-850 is excellent

But Why Should I Care?

If you’re a bazillionaire, then perhaps you don’t have to worry about credit scores. But if you’re like most of us and have any plans to borrow future money–for a car purchase, a new home, or even taking out a loan to start a business–you need a good credit score.

Credit essentially assigns a number to how trustworthy you are with money, or how risky it’d be to give you a loan.

Good credit = more trust. It shows you’re good for the loan, and you’ll pay it back on time. You’ll be given lower interest rates and higher credit limits and could even lower your insurance rate.

Bad credit = less trust. Those with power to lend you money may see it as a sign that you’re less likely to pay back your loan on time. This can mean higher interest rates, lower limits, or even a total denial of the loan request. Landlords check credit scores and often choose not to rent to those with poor credit history. Ouch.

So, How Do I Build Good Credit?

To work on anything meaningfully, you need to first understand it. First start by requesting your credit score from three major credit bureaus:

● Equifax

● Experian

● TransUnion

You’ll want to get in the habit of checking these annually. Don’t forget to dispute any information that might not look correct.

Pay On Time

35% of your score is attributed to payment history, so Pay. On. Time. Every. Time. This includes credit cards, retail cards, loans, mortgages, and medical bills. Late payments can stay on your record for seven years!

Build Up Good Credit

Just starting out? Open up a secure credit card. These require a deposit, making you a lower risk for lending money. Like we said above, don’t miss a payment!

Apply for a credit builder loan. This is a great tool for someone with no credit, and essentially helps establish you as someone they can trust loaning money to.

Piggyback on someone else! Become a co-signer or authorized user on a family or good friend’s account, so you can lean on their good credit.

Improving a Bad Score

Starting from a rough spot? You can improve a bad score with some focus, dedication, and time.

Pay Off Any Collections First

This should be your TOP priority. Not only will it lower your score, but it will also avoid a potential (expensive!) lawsuit.

Limit Hard Inquiries

Every time you apply for new credit (like buying a car or taking out a loan) you create a hard inquiry on your credit. Too many, and that’ll hurt your score.

Don’t Use All Your Credit

The optimal credit utilization rate is around 30%. Make sure to pay off balances fully and consider applying for a new credit card to right-size your available credit.

You’re Not Alone

Hitting a Snag? Feeling like you need some 1-on-1 help? Remember, you’re not alone in this. Work with a credit repair company to dispute any inaccurate or fraudulent information, or connect with a non-profit credit counseling organization for additional support.

Building Back with Stronger Habits

The best day to start positively affecting your credit score is today–and that starts with a budget. Line item out everything and stick to it.

It’s important to live within your means and remember just how expensive it truly is to take on debt. While it’s easy to get into debt, it can be extremely hard to get out of it.

Getting access to new credit can be tempting. Many folks take on the “spend the money now, figure out how to pay it off later” approach. And if you take ONE thing from this article, let it be this: don’t do that!

Your credit score is built on trust. Building your credit score up means making good on that trust: paying your bills on time, every time, living under your means, and keeping an eye on your credit reports regularly.

We’re excited to help support your journey into all-star credit. If you have questions or just want to continue the credit score conversation, give us a call at 303-321-4209, stop by at your nearest branch location, or send us a secure message through Digital Banking to get started.