A credit score is a number associated with the history of how you pay your bills that third parties then use to determine whether or not you make a good candidate for a loan or your likelihood to pay off debts. These scores typically range from 300 to 850 with 300 falling into the poor category and 850 reaching excellence. The formula for determining these scores is often calculated by big credit bureaus such as Fico and VantageScore. Discover what factors affect your credit score, how credit impacts your life, and steps you can take to improve your score below.
Factors Affecting Your Credit Score
Payment History: This is the top and most important influencer in determining your credit score. However, it’s also the easiest sector to score highly in as all you have to do is make sure every payment is made on time.
Outstanding Debt: Outstanding debt or your credit to debt ratio comes in at the second most important factor in determining your credit score. The best way to score highly is to use your credit cards every month while maintaining a responsible schedule to pay off balances.
Credit Longevity: instead of closing and opening new accounts, keep your same accounts open over a long period of time to show you’ve maintained an excellent length of credit history. With a little patience you’ll start to see this score improving over time.
New Credit: Scoring models can look at recent inquiries or checks, so opening multiple accounts at the same time presents yourself as a higher risk candidate to lenders. If you’re planning to apply for any type of loan in the upcoming future it’s beneficial to limit new inquiries to your credit report.
Credit Mix: Obtaining different types of credits such as lines of credit and installment loans helps you score higher in this sector. An example is taking out an auto loan or even student loans while still maintaining monthly credit card payments. However, only take out loans you absolutely need, as taking one out just to impact your credit score is not a viable solution.
How Credit Scores Directly Affect Your Life
Credit scores are a vital contributor to a number of important purchases and payments throughout your life. Big purchases, loans, and living arrangements more often than not request you show your credit score before approval of purchases. Some areas in life you may need a high credit score include:
- Renting an Apartment
- Applying for Loans (Mortgage, Student, Auto)
- Purchasing a Cell Phone Plan
- Getting Hired for a Job
Acquiring a Personal Loan Can Help You Consolidate Debt
Seeking out a debt consolidation loan means taking out a personal loan to help pay off high interest debt, typically from credit cards. At Greater Niagara Federal Credit Union we offer Share Secured Loans to make your money work for you. Taking out this type of personal loan is a great way to establish credit or improve your credit score by simply making regular payments.
Five Steps to Improve your Credit Score
- Open a credit card if you don’t already have one. See about opening one with GNFCU here.
- Always make all your payments on time.
- Add to your credit mix.
- Dispute credit report errors.
- Seek out personal loans.
With the knowledge of credit score impacts and factors, as well as some simple steps to improve your credit, you’re on your way to a healthier financial future. Greater Niagara Federal Credit Union helps you through financial milestones with personalized quality services when you sign up for a membership with us.