Maintaining a good credit score can help you build a strong financial foundation and set you up for success!
What’s in a Credit Score?
There are several factors that make up your credit score, including your payment history, the amount owed, the ratio between balance and limit, the length of credit your history, and the mix of credit types. Credit scores range from 300 to 850, you should aim to have a score of 700 or higher.
Payment History
Your payment history has the biggest impact on your credit score. Making on-time payments is crucial. If you fail to make payments on-time, your score will decrease. Failure to make timely payments causes events such as collections, judgments, and bankruptcies to become a part of your credit report which can greatly reduce your credit score.
Amount Owed and Ratio
The next major factor in your credit score is how much you owe, and the ratio between your balance and credit limit. If your credit card limit is $1,000.00, it’s best to keep your balance lower than $500.00 and pay off the balance in full each month. Additionally, if you are trying to build your credit score, try to maintain an even lower balance, such as 25% of the limit or less.
Length of Credit History
Another influence on your score is the length of your credit history. This history includes the number of months in your credit history, as well as the average age of your accounts. The higher the average age, the better your credit score. If you want to improve the average age of your credit, do not open any new, unnecessary accounts; new accounts reduce your average credit age. It’s important to note that each time you open a new account, it is likely that your credit will be checked, resulting in an inquiry. Too many inquiries can also lower your score.
Mix it Up
Finally, remember it is helpful to have a balanced mix of credit accounts on your credit report. If you only have one account type, such as a credit card, consider opening a different type like a Vehicle Loan when you purchase your next vehicle. You only need to have approximately 3 active accounts to build or maintain your credit score. However, it is important not to open accounts you won’t use. If you are looking for a specific loan to build your credit we can help. We have a Credit Builder Loan designed to help you build your credit.
Types of Credit
Key Takeaways
- Aim to have a credit score of 700 or better
- Make payments on-time
- Keep your credit balance at 25% of the limit, or less, to improve your score
- Work towards a higher average age for credit accounts
- Mix it up, have three different types of credit
Now What?
Not happy with your credit score or want help improving it? Sit down with our Financial Wellness Counselor and go over your credit report, to work on meeting financial goals!