Money Matters: 5 Tips to Improve YOUR Credit Score

 

Together Credit Union is thrilled to share financial wellness tips each month on The McGraw Show to help our community establish and maintain healthy financial habits. This month, we focus on the importance of credit scores and what you can do to increase yours.

 

What is a Credit Score?

A credit score is a numeric summary of the information detailed in your credit history report.

 

While creditors and lenders typically report your payment activity to at least one of the major credit reporting bureaus, most credit scores are calculated by credit scoring agencies, like FICO®. The major factors used in a FICO score are:

 

Payment history (35%)

Payment history refers to whether individuals pay their credit accounts on time. Credit reports show the payments submitted for each line of credit, and the reports detail bankruptcy or collection items along with any late or missed payments.

 

Accounts owed (30%)

Accounts owed refers to the amount of money an individual owes. Having a lot of debt does not necessarily equate to low credit scores. Instead, FICO considers the ratio of money owed to the amount of credit available.

 

Length of credit history (15%)

Generally, the longer an individual has had credit, the better their score. However, with favorable scores in the other categories, even someone with a short credit history can have a good score. FICO scores consider how long the oldest account has been open, the age of the newest account, and the overall average.

 

Credit mix (10%)

Credit mix is the variety of accounts. To obtain high credit scores, individuals need a strong mix of retail accounts; credit cards; installment loans, such as signature loans or vehicle loans; and mortgages.

 

New credit (10%)

New credit refers to recently opened accounts. If a borrower has opened a bunch of new accounts in a short period of time, that indicates risk and lowers their score.

 

Generally, scores range between 300 and 850. The higher the score, the lower the perceived credit risk.

 

Why Credit Scores Matter

Your credit health affects how much you pay for everyday services, impacts where you live, and could even determine whether you secure your dream job. Creditors, insurance carriers, landlords, utility providers, mobile companies, and employers aim to limit risk. Some will use your credit history report or credit scores to decide if you're likely to fulfill your obligations as customers, tenants, or employees.

 

You're more likely to experience greater lifestyle freedom when you have a better-than-average credit score. For example, many consumers with high credit scores tend to pay lower interest rates on financed purchases and are not required to pay security deposits on products or services.

 

How Can I Raise My Credit Score?

 

Review Your Credit Reports

To improve your credit, it helps to know what is right or wrong with your credit score. The first place to gather all the information that is basing your credit score can be found on your credit report. It’s recommended to pull your credit report annually, and federal law allows you to get a free copy of your credit report every 12 months from the 3 major credit bureaus: Experian, Equifax, and TransUnion.

 

Verify that all of your information is correct and up to date on your credit report. If something looks wrong, dispute the incorrect details with the proper credit bureau and lender.

 

Use Credit Monitoring to Track Your Progress

Credit monitoring services help you see how your credit score changes over time and monitor for changes in your credit report. As a rule, they give you access to at least one of your credit scores from Equifax, Experian, or TransUnion, which are updated monthly.

 

Many of the best credit monitoring services also help you prevent identity theft and fraud!

 

Get a Handle of Bill Payments

A simple way to improve your credit score is to avoid late payments by setting up automatic bill payments. This also helps you avoid overdraft fees, penalties, and interest.

 

Aim for 30% Credit Utilization or Less

Keep your credit utilization in check by paying your credit card balances in full each month. If you can’t always do that, keep your total outstanding balance at 30% or less of your total credit limit. From there you can work on whittling that down to 10% or less, which is considered ideal for improving your credit score.

 

Consolidate Your Debts

Consolidating your debts into one loan will help you simplify your finances and lower the amount of interest you pay overall on your combined sources of debt. By consolidating your credit card debt, you can lower your revolving credit utilization ratio, which is a factor considered by most credit bureaus in calculating credit scores. If you reduce your balance on several credit cards, and keep them open, you’ll decrease your credit utilization ratio.

 

Reminder

Together Credit Union has partnered with GreenPath Financial Wellness to help members rebuild their credit.

What does GreenPath offer?

Free Financial Counseling

A simple call to review all options and personalize an effective plan.

 

Debt Management Plan

Recommended for credit card debt, members will set up a repayment plan to stop collection calls, reduce interest, eliminate fees, and pay off the principal balance faster.

 

Credit Report Review

A plan to help dispute inaccurate information and manage/know more about your credit score.

Housing Services

Recommended for late rent or mortgage payments, experts will help determine which option is best to get members back on track.

 

Student Loan Debt Counseling

Discuss different options on what is the best way to pay off student loan debt.

 

Other Helpful resources

 Learn more by visiting TogetherCU.org