Do you know your credit score?
It’s the three-digit number that plays a very important role in your life. A strong credit score makes life more affordable; from getting lower loan and credit card interest rates, better car insurance rates, and even cell phone plans!
Your credit score is calculated through a mix of data points, including your payment history, the amount of credit you use, the length of your credit history, the kinds of credit accounts you have and how often you apply for new credit. While there isn’t a single formula used to determine your credit score, the factors that affect your credit score are typically similar across the board.
An ideal credit score is 760 or above, but don’t get discouraged if your credit score falls under that threshold. Credit scores aren’t static! With some effort, you can improve your credit score. Even a small improvement can reap benefits. Here are some steps you can take to improve your credit score:
You can receive a free credit report every 12 months from the main three credit bureaus: Equifax, Experian, and TransUnion. Your credit score won’t be included (you usually need to pay to see it) but you will be able to see if there are any negative marks on your report that could be affecting your score like late payments. If you notice any mistakes or negative marks that are outdated, file a dispute with to have it reviewed and hopefully removed.
Your credit utilization ratio (the amount of revolving credit you’re using divided by the total amount available) should be 30% or lower. A low utilization rate shows lenders that you manage your credit well. Improving your utilization rate is as simple as paying off outstanding debts and keeping credit card balances low.
Lenders are interested in your on-time payment history, simply because past payment performance is a good indicator of future performance. Make sure to pay ALL of your bills on time, not just credit card or loan payments. Soon, even your utility, cell phone or even rent payments can affect your credit score. Have you been missing payments? You can still get on top of your payment history by focusing on making on-time payments from here on out. Just remember: missed payments stay on your report for seven years but your new history of on-time payments can off-set those past missteps.
If you’re planning to purchase a new home this year, you’ll want to make sure your credit score is at its best. Thankfully with some effort and patience, you can have an ideal credit score.