For better or for worse, your credit score can significantly impact your financial life. What is the significance of this number? What impacts it? And what can you do to improve it? This article can help demystify the credit score.
The concept of evaluating a company or individual’s creditworthiness has been around since 1841. But it wasn’t until the late 1980s that the first credit score was officially introduced. Before this, banks relied on opinion and subjective assessments of a customer’s creditworthiness. Now, we all use a standardized range from 300-800, with 300 being low and 850 being a “perfect” score.
Having a higher score means lenders see you as a lower risk. Therefore, a good score can help you get a new credit card, apply for a loan, or get approved for a mortgage. Your credit union or financial institution might offer you no-fee online tools. For instance, with a Nusenda account, you can check your credit anytime with our Credit Score tool. Plus, you can learn how to improve your credit through the app.
Here are six quick tips on how to improve your credit score:
- Make on-time payments
This is the most important credit score factor. Your payments are categorized into on-time, late, and missed. Obviously, you want to always pay on time. One way to make sure you are paying bills and balances on time is to enroll in autopay. You can also sign up for a no-fee service such as Nusenda’s Bill Payer, which helps you stay on top of your finances, pay bills online, and never miss another payment. Another idea is to register for Experian Boost and start earning credit on things that aren’t usually counted, such as your cell phone bill, eligible rent, or utilities.
- Pay down revolving accounts
Revolving accounts include credit cards. Try to keep your balance as low as possible. There are different options to pay down your cards, if you are struggling with them. These include debt consolidation, a balance transfer credit card, or a debt management plan. A personal loan at Nusenda can consolidate your credit card payments so you are only making one monthly payment on your loan. Your changes could begin to reflect positively in your credit score in about one month!
- Keep your oldest account open
The reason this is recommended is because length of credit history is important in determining your score. So instead of closing an old card, consider using it every so often or paying a small, recurring bill through the account. You can also contact your card company and see if they will let you upgrade the card to one that works better for you. Just remember that closing an old credit line can significantly damage your score.
- Dispute
If you notice charges on your credit card that you don’t agree with, it could be due to identity theft or errors on the card itself. These inaccuracies can negatively impact your credit score. If you see inaccurate information, contact the relevant credit bureau immediately so as to avoid potential damage to your score.
Equifax: 866-349-5191
Experian: 888-397-3742
TransUnion: 800-916-8800
For more information, you can also visit the Consumer Financial Protection Bureau
- Limit hard inquiries
Another tricky aspect to credit score building is balancing how many credit cards you will apply for. If you are a new or inexperienced credit card user, you might be tempted to apply to many different cards. However, each hard inquiry will knock points off your score (although no more than five points*), so, try to limit them. And many inquiries in a short amount of time can have a compounding effect.
- Diversify
This last tip isn’t as big of a factor as the previous ones, but still has an impact. The more diverse your credit is, the better. For example, if you only have credit cards right now, consider getting an auto or mortgage loan, too. Often your loans will become more diversified as you hit different milestones in your life (such as buying a new house), but you can apply for a credit-builder loan if you want to start diversifying now. Just be cautious not to take on too much debt in your attempts to build credit!
At Nusenda Credit Union, we’re dedicated to improving our members’ financial well-being and supporting them through affordable products, friendly service, and financial education. Check out a wealth of financial well-being resources through Banzai. You can also contact us at 505-889-7755 (800-347-2838 outside the Albuquerque area) or make an appointment to meet with us at any of our branch locations. Here's to demystifying credit scores once and for all!
*InCharge Debt Solutions, FICO, and Experian.