By: JB Beckett, Beckett Financial Group
Understanding and managing your credit score is an integral part of personal finance. These
scores are used to determine how much money you can borrow and at what interest rates, but
they’re also used in tenant screenings. In some cases, potential employers may even pull a
credit report to screen applicants. So how are these scores determined and what can you do to
improve your score?
Several factors impact your credit score. Your bill-paying history, the length of your credit history,
the number and type of loan accounts you have open, current unpaid debt, active credit
applications, and how much available credit you’re using are all used to calculate your score.
Any foreclosures or bankruptcies will also be considered. Your credit score essentially serves
as your financial report card and scores typically range from around 300 to 850. Ultimately, the
closer your score is to 850, the more purchasing power you have.
You can find your credit score in a number of ways. Your score can be found on your credit or
loan statement, through a non-profit counselor, or from a credit score service or bureau. Some
companies advertise ‘free credit scores,’ while others allow you to view your score for purchase.
If you’re looking for a free option, visit AnnualCreditReport.com.
If your score falls in the lower range, prioritize improving it in the new year and there are several
ways to improve your credit score.
- Pay your loan balances on time, every time. Missed payments can lower your
score. If you’re worried about forgetting to make a payment, set up automatic
payments. - Don’t apply for more credit than you need. Credit scoring models analyze your
recent credit activity as a signal of your need for credit. Applying for a lot of credit
over a short period of time could indicate your financial circumstances have taken a
hit. - Avoid reaching your credit limit. These scoring models also look at how close you
are to maxing out your card so keep your balances low. A good rule of thumb is to
make sure your balance does not exceed 30 percent of your total credit limit. - Regularly review your credit report. Errors on your credit report aren’t unheard of.
Reviewing your report on a regular basis can help you spot errors or fraudulent
activity. If you notice an error, dispute it immediately as these errors can lead to a
lower score. If you have older accounts not in use, be sure to check them for
fraudulent purchases as this could be a sign of identity theft.
Your credit score plays a huge role in your ability to make big purchases, qualify for higher credit
limits and increases, and eligibility to receive lower interest rates. Don’t allow a lower score to
limit or inhibit you from achieving your financial goals in the new year.
