Credit Management

Understanding Your Credit

Your credit score impacts all areas of your financial life, from getting approved for a credit card to the rate you qualify for on a mortgage. Not surprisingly, the higher your credit score, the better. So if you’re wondering how to improve your credit score, understanding the ins and outs of how it’s calculated can help you figure out how your actions impact your rating. Below, we’ve put together everything you need to know in order to improve your credit score.

What is a credit score?
A credit score is a number determined by a credit bureau that helps lenders assess how well you’ve managed your financial obligations.

What makes up a credit score?

While there’s no single formula that determines a credit score, here are some categories and their relative importance.

• 35% - Payment history - Do you consistently pay your bills on time?
• 30% - Amounts owed - Try to use less than 30% of the credit available to you.
• 15% - Length of credit history - Generally, longer is better.
• 10% - Credit inquiries - Only hard inquiries, when you’re looking to open an account or take out a loan, count here.
• 10% - Types of credit in use - This includes credit cards, student loans, mortgages and more.

What do the numbers mean?
The higher the score, the more likely you are to repay your obligations and the less you are seen as a financial risk to creditors, prospective employers and landlords. Most credit scores rank individuals on a scale from 300-850.

How can I affect my credit score?
While there’s no single formula that determines a credit score, here are some categories and their relative importance.

Items that help your credit score:

• Consistently pay bills on time and in full.
• Keep your revolving account balances around or below 30% of your credit limit.

Items that hurt your credit score:

• Fail to pay even the minimum on credit cards and loans.
• File for bankruptcy or have an account turned over to a collection agency.
• Apply for a lot of credit or exceed your current account limits.

Where can I get my credit score and report?

The three major credit bureaus produce credit reports and you can request one free report annually from each. Visit AnnualCreditReport.com or call 877.322.8228 for more information.

Do’s & Do Not’s of Credit

The way you use credit can affect your ability to borrow money in the future. It is important to use credit responsibly and avoid the mistakes that can push a credit score in the wrong direction.

Four do's of credit

DO begin with credit cards.

Credit cards are an easy way to start building your credit history. Opening a credit card and using it responsibly will show lenders that they are not at risk in approving you for loans. Contact us to learn about credit card options available.

DO charge some expenses on credit cards each month.

Just having credit cards will only take your credit score so far. You have to use them and pay your monthly bills to establish a credit history. While credit cards come in handy when unexpected expenses come up, charging a small amount each month that you can pay off consistently will put you on a path to responsible credit card use.

DO pay off balances each month.

Building a positive credit history is much easier when you are not carrying balances on credit cards. Paying the full balance off each month will not only help your credit score, but it will also help you stick to a budget.

DO check your credit report each year.

There are three nationwide credit reporting agencies — Experian, Equifax and TransUnion. Ordering free annual credit reports from www.annualcreditreport.com will help ensure that there are no mistakes in your credit history while helping to protect you from identity theft.

Four don'ts of credit

DON’T open too many credit cards.

While a few credit cards can help you build a positive credit history, having too many could have the opposite effect, particularly if some of them are high-interest store credit cards. The more cards you have, the more difficult they will be to manage, and the higher the likelihood that you may overextend yourself. Limit yourself to three to five credit cards.

DON’T pay bills late.

Because credit scores measure your ability to pay bills, nothing will drop a credit score faster than not paying bills on time.

DON’T fall into the interest-free trap.

Many stores – selling everything from electronics to furniture and even cars – offer interest-free financing. While zero interest is an attractive incentive, it can also give you a false sense of security that you’re able to afford more than your budget allows. Also, many interest-free plans last for a set amount of time. If the balance is not paid in full before the promotional offer expires, the financing will revert to a higher interest rate.

DON’T keep all of your money in a checking account.

Keeping all of your money in a checking account can create problems. It can cause you to spend more than you want because the funds are readily available. Keep what you need to cover monthly expenses in checking and consistently deposit the rest into a savings account. That way you can ensure that you will have a resource to tap into when unexpected expenses occur and that money will work for you by earning interest.