By Heath Kinsland | Market President | Littleton
Your credit score is a three-digit number that holds significant importance in your financial life. Whether you’re applying for a loan, renting an apartment, or even getting a new job, your credit score plays a crucial role.
Understanding the basics of credit scores can empower you to make informed financial decisions and take steps to improve your creditworthiness. Learn more about the fundamentals of credit scores, how they are calculated, and how to maintain a healthy credit score.
What is a credit score?
A credit score is a numerical representation of your creditworthiness, reflecting your credit history and financial behavior. Lenders, landlords, and other institutions use it to assess the risk associated with extending credit to you. The most used credit scoring models are FICO® Scores and VantageScore®. These scores range from 300 to 850, with higher scores indicating better creditworthiness.
Can I get a loan if I don’t have a credit score?
Having no previous credit history and having no credit score does not immediately disqualify you from getting conventional credit through your local bank like Redstone Bank. However, showing you have responsibly handled credit in the past, as simple as a credit card, and establishing a good score opens doors for improved rates and possibly longer terms than otherwise would not be possible.
Factors that influence your credit score:
- Payment history: Your payment history is the most critical factor in determining your credit score. Consistently paying your bills on time positively impacts your creditworthiness.
- Credit utilization: This refers to the percentage of your available credit that you are currently using. Keeping your credit utilization below 30% demonstrates responsible credit management.
- Length of credit history: The length of time you’ve had credit accounts is another important factor. A longer credit history generally reflects stability and responsible credit usage.
- Credit mix: Having a diverse mix of credit accounts, such as credit cards, loans, and mortgages, can have a positive impact on your credit score.
- New credit applications: Opening multiple credit accounts within a short period can be seen as a red flag, potentially lowering your credit score.
Obtaining your credit score:
You are entitled to a free credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once a year. These reports provide detailed information about your credit history and can help you identify any errors or fraudulent activities. Additionally, many credit card companies and financial institutions now provide free credit score monitoring services, allowing you to track your score regularly.
Maintaining a healthy credit score:
- Pay your bills on time: Late payments can significantly impact your credit score, so always strive to pay your bills by their due dates. Redstone offers convenient BillPay in our online banking and mobile app to help you set up automatic payments and never miss a due date again.
- Manage your credit utilization: Aim to keep your credit card balances low and avoid maxing out your available credit. It’s a good habit to pay down credit cards twice each month, ensuring that you’re not overusing your credit card and that you never miss a payment.
- Avoid unnecessary credit applications: Be mindful of the number of credit applications you submit and only apply for credit when necessary.
- Regularly review your credit report: Check your credit report for errors or inaccuracies, and promptly dispute any discrepancies you find.
- Build a positive credit history: Responsible credit use over time, along with a mix of credit types, can help improve your credit score.
Rebuilding a poor credit score:
If you have a low credit score or a history of financial difficulties, don’t lose hope. It’s possible to rebuild your credit over time. Start by paying your bills on time, reducing your debt, and addressing any outstanding negative items on your credit report, such as outstanding judgments or collections. Patience and consistency are key to improving your creditworthiness.
Your credit score is a valuable asset that impacts various aspects of your financial life. By understanding the factors that influence your credit score and adopting healthy financial habits, you can work towards maintaining a strong credit profile. Regularly monitoring your credit score and reviewing your credit report will provide valuable insights into your financial health. Remember, a good credit score opens doors to better opportunities, so take the necessary steps to nurture your creditworthiness and secure a brighter financial future.